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VAT Input Tax Credit Claimable for Perquisites Given to Employees

December 24, 2018

Certain Points needs to be considered for claiming Input Tax Credit in relation to any perquisites given to employees.

As per Article 53 (1) (c)of  Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax, Non-Recoverable Input Tax

Where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, except in the following cases:

  1. where it is a legal obligation to provide those Services or Goods to those employees under any applicable labour law in the State or Designated Zone.
  2. it is a contractual obligation or documented policy to provide those services or goods to those employees in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people;
  3. where the provision of goods or services is a deemed supply under the provisions of the DecreeLaw.

Above provision states that any perquisites given to an employee will be claimable only if

  • There is a Legal Obligation or,
  • There exists a Contractual Obligation or Documented Policy and,
    • It can be proven as normal Business Practice.
    • It is important for them to perform their role.

Examples for claimable employee perquisites could be:

  • Medical Insurance for employees as per the labor contract
  • VISA expenses for employees as per the labor contract
  • Hotel Expenses for Employees visiting from HO to Branch Office

Therefore Employee Perquisites may not be claimable if:

  • Where there is no legal obligation or,
  • There is a contractual obligation or documented policy but it is not important for them to perform their role. or
  • There is no contractual obligation or documented policy but it is important for them to perform their role.

Examples for non-claimable employee perquisites could be:

  • Medical Insurance for the family of employees where there is a contractual obligation or not.
  • VISA expenses for the family of employees as for where there is no contractual obligation.
  • Gifts, rewards, coupons, etc. given to employees during Birthdays, Eid, Christmas, etc.,
  • Telephone expenses where there is no contractual obligation
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Last Updated: 24th December 2018

This article is contributed by:

Gautam Sainani

Internal Auditor, Internal Audit


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