A UAE VAT-registered company purchases a motor vehicle for its sales team's use, and the vehicle is not restricted from personal use by any policy, contract, or vehicle type (it is not a taxi, an emergency vehicle, or a rental-fleet vehicle). The same company separately pays for a hospitality dinner for prospective clients who are not its employees. Under Article 53 of the VAT Executive Regulation to Federal Decree-Law No. 8 of 2017, can the input tax on either the vehicle or the client dinner be recovered?
- Only the vehicle's input tax is blocked; the client dinner is fully recoverable because entertaining prospective, rather than existing, clients is treated as an ordinary business development cost
- Neither is recoverable: input tax on a motor vehicle available for personal use is blocked unless it falls within a specific exception such as a taxi, an emergency vehicle, or a rental-fleet vehicle, and input tax on entertainment provided to anyone who is not an employee, including prospective clients, is also blocked
- Both are fully recoverable, because Article 53 only blocks input tax on goods and services used exclusively for a person's private, non-business purposes
- Only the client dinner's input tax is blocked; the vehicle's input tax is recoverable in full so long as the vehicle is used predominantly, even if not exclusively, for business purposes
Why B? And why not the others?
Correct answer: B. Neither is recoverable: input tax on a motor vehicle available for personal use is blocked unless it falls within a specific exception such as a taxi, an emergency vehicle, or a rental-fleet vehicle, and input tax on entertainment provided to anyone who is not an employee, including prospective clients, is also blocked
Article 53 of the VAT Executive Regulation blocks input tax recovery on a motor vehicle purchased, rented, or leased for business use if it is available for personal use, unless the vehicle falls within a defined exception such as a taxi licensed by the competent authority, an emergency-service vehicle, or a vehicle used in a vehicle-rental business and rented to a customer; here none of those exceptions apply, so the vehicle's input tax is blocked. Article 53 separately blocks input tax on entertainment services, including hospitality such as meals, provided to anyone who is not an employee of the business, which covers prospective clients just as it covers existing clients, officials, or shareholders. The option treating prospective-client entertainment as recoverable is wrong because the blocking rule applies to non-employees generally, without distinguishing prospective from existing clients. The option allowing full recovery on the basis that Article 53 only targets exclusively private use is wrong because the motor-vehicle rule turns on availability for personal use, not on how the vehicle is actually used day to day. The option allowing full vehicle recovery based on predominant business use is wrong because predominant business use does not remove a vehicle from the blocked category once it remains available for personal use and no exception applies.
Source: UAE Federal Decree-Law No. 8 of 2017, Article 53 of the Executive Regulation (Non-Recoverable Input Tax)