VAT Public Clarification
Mobile Phones, Airtime, & Data Packages Made Available to Employees for Business Use
Most enterprises participate in contracts with telecommunication service providers to make mobile phones (“Phones”), airtime (“Airtime”) (also referred to as calling minutes) & data packages (“Packages”), accessible to their employees to execute outside the office hours or at locations away from the office.
In the unprecedented times of the pandemic, there has been an elevation in work-from-home activities, which alternatively resulted in employers paying for Phones, Airtime, & Packages’ expenses that permitted their staff to work remotely.
There has been a hike in the personal use of Phones, Airtime, & Packages, there has been an increasing concern on whether a business is eligible to recover the input VAT applied.
If so, what are the obligations to be entitled to input tax recovery? In this article, we will discuss the Public Clarification that gives support on the application of the VAT legislation in line with the recovery of input VAT sustained on Phones, Airtime, & Packages obtained for business use.
In circumstances where a company obtains Phones, Airtime, & Packages for utilization by its employees exclusively for work purposes & has defined a strict policy to confine the use of such Phones, Airtime, & Packages only to business purposes, the right to use the Phones, Airtime, & Packages will not establish a personal benefit for the employee. This is only if the value of the Airtime & Packages was decided based on actual past business usage. This does not include backdated policies.
Input VAT Recovery
A taxable person/company may normally retrieve input tax paid for goods & services used (or intended to be used) for making taxable supplies. That is, Article 54(1)(a) of the Decree-Law declares that the input tax that is recoverable by a taxable person or company for any tax period is the total of input tax paid for goods & services which are used or intended to be used for making of taxable supplies.
The right to recover input VAT is, nevertheless, restricted in cases provided for in the Executive Regulation, irrespective of whether the price was incurred to make taxable supplies or not. This highlights Article 54(5) of the Decree-Law affirms that the Executive Regulation will indicate the circumstances where input tax is excepted from being recovered.
Non-Permissible Recovery of Input Tax
Article 53(1)(c) of the Executive Regulation bans the retrieval of input tax acquired on goods or services procured to be used by an employee for their personal benefit without any charge to the employee, unless of course there is a legal obligation on the employer to deliver such services for the employee to perform their role, or where the provision of goods or services is a deemed supply under the provisions of the Decree-Law.
Where an employer purchases Phones, Airtime, & Packages solely for business reasons & has a rigid policy to restrict the use of such Phones, Airtime, & Packages for business purposes, the right to use Phones, Airtime, & Packages would not represent a personal advantage for the employee.
Exclusively for Business Use
Article 53(1)(c) of the Executive Regulation does not apply where a taxable person can prove that the Phones, Airtime, & Packages are used solely for business purposes. In addition to consuming a documented policy on the restricted use of Phones, Airtime, & Packages, the business would be obligated to authenticate that it screens the use of Airtime, & Packages & takes proper action against employees who use the Phones, Airtime, & Packages for personal use in accordance with the documented policy.
As part of supervising the acceptable use of Phones, Airtime, & Packages, the taxable person shall consider the difference between the actual usage & the average Airtime & Packages utilized for the specific role of the employee work purposes. If the business obtains Airtime & Packages based on the expected business requirements, any Airtime & Packages utilized excessively for the business plan will be considered as non-business use, unless & until the additional Airtime & Packages is recharged to the employee with output VAT, or if there is vigorous monitoring initiated to validate the actual use.
As part of the documented policy, workers should be made conscious of the consequences of not enduring by the policy & the taxable person should maintain proof of action taken against employees not abiding with the documented policy.
Input Tax Recovery Requirements
With regards to the above, a business is authorized to retrieve input tax in respect of Phones, Airtime, & Packages purchased if these expenses are sustained to make taxable supplies & the following conditions are met:
• The company is registered for VAT & acquired Phones, Airtime, & Packages in its own name, i.e. the company’s details are displayed on the tax invoices & contract with the service provider;
• The company has a firm documented policy which distinctly states that the Phones, Airtime, & Packages may only be utilized for business purposes, & the consequences of any personal use;
• The company consistently observes the use of Airtime & Packages & maintains support reasons for the variances;
• The company acts against workers using Phones, Airtime, & Packages for personal use in agreement with the documented policy; &
• The company preserves valid tax invoices in respect of the Phones, Airtime, & Packages acquired.
Note that only documented policies that were already existing at the time the Phones, Airtime, & Packages were made available to the employee will be considered. If all the above requirements are not met, the recovery of input tax gained in respect of Phones, Airtime, & Packages will be blocked in accordance with Article 53(1)(c) of the Executive Regulation.
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Article Source Reference: FTA (official portal).