An employer, where it acquires Phones, Airtime, and Packages exclusively for its employees for business purposes and has established a strict policy restricting such employees from personal use, would not be regarded as providing a personal benefit to the employee. (Provided the value of such Airtime and Packages are based on actual historical usage). Backdated policies will not be accepted.
· Input Tax Recovery
If the taxable person uses (or intends to use) goods or services for making taxable supplies, generally the taxable person can recover the input tax paid on those goods or services
However, the right to recover input tax is subject to certain limitations in the Executive Regulations, regardless of whether the cost was incurred for making taxable supplies.
· Non-permissible Recovery of Input Tax
Article 53(1)(c) of the Executive Regulations prohibits the recovery of input tax incurred on goods or services purchased to be used by an employee for their personal benefit without any charge to the employee, unless there is a legal or contractual obligation on the employer to provide such service in order for the employee to perform their role, or it is a deemed supply.
· Solely for Business Use
Article 53(1)(c) of the Executive Regulation does not apply if a taxable person can prove that the Phones, Airtime, and Packages are used exclusively for business purposes. Apart from a documented policy on the restricted use of Phones, Airtime, and Packages, the business should demonstrate that it monitors the usage and takes appropriate action against employees’ personal use in accordance with the policy.
Input Tax Recovery Requirements:
Considering the above, a business is entitled to reclaim input tax for Phones, Airtime, and Packages acquired only if the following requirements are met:
· A business registered for VAT acquires Phones, Airtime, and Packages in its own name i.e. its details appear on tax invoices and with the service provider.
· It has a documented policy that states that Phones, Airtime, and Packages may only be used for business purposes, and consequences of personal use.
· Airtime and Package usage are monitored regularly, and variances are justified
· Employees using phones, airtime, and packages for personal use are dealt with according to the documented policy.
· Tax invoices for Phones, Airtime, and Packages acquired by the company are on file.
All documented policies that were available to the employee at the time the phone, airtime, and package was issued will be considered.
The recovery of input tax on Phones, Airtime, and Packages will be blocked if all of the above conditions are not met.
Source: VAT Public Clarification – Federal Tax Authority