I make online payments through my business bank account and can see on the statement that the bank charges me VAT on all its transfer and monthly account fees. Can I reclaim this? CM, Sharjah
The general rule is that you can reclaim VAT charged by your bank on transfer fees and monthly account maintenance fees. Most banks are already mentioning that VAT is included in the description of the fees charged, and some banks are showing their fees on one statement line and the VAT on a separate line. Article 55 of the Decree Law states that you can deduct input VAT if you have paid the tax and you receive and keep a VAT invoice. A few banks are already issuing separate monthly summary VAT invoices which detail all the fees charged for the month and the VAT on those fees. You should keep those invoices and be able to provide them in case of a VAT audit to support the reclaim.
The situation becomes a little less clear if your bank is one of those not issuing summary tax invoices. Clearly you’ve paid the vat and should have the right to recover it, but you don’t have a tax invoice to support the reclaim. Firstly, ask the bank to issue tax invoices or explain why they are not issuing them when they are required by law to do so. I suspect many banks are just a little behind in making the necessary system changes required to issue automated VAT invoices and they will issue them shortly, including those for months already past.
If the bank confirms that they will be issuing invoices you have the option to delay the input tax reclaim until your next VAT return and this is the most prudent course of action.
Article 59 part 7 of the Executive regulations allows, in certain cases, for the tax authority to determine that a tax invoice is not always required if it is impractical to issue them. Therefore, some banks may have secured approval from the tax authority not to issue VAT invoices and showing the VAT applied to fees on the bank statement might be enough for the bank to comply with the legislation and for you to reclaim the VAT. Because the VAT regime is so new and first returns are only just now being completed, it is not easy to predict the FTA’s stance in relation to reclaiming VAT on the basis of a bank statement alone. I would continue to put pressure on your bank to issue VAT invoices or get written confirmation from them that they have been exempted by the FTA from doing so. I would also email the FTA for their advice on this matter and follow their guidance.
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We are a VAT-registered business and have just launched a new kiosk cafe. Can we claim input VAT for the purchase of the cafe and other pre-operation expenses? YY, Dubai
You don’t mention whether the expenses were incurred pre- or post-VAT registration, so I’ll address both scenarios. A VAT-registered business may reclaim input VAT on its business-related expenses. The fact you have not yet started operating the café does not affect your right to reclaim the tax if you are already registered.
Article 56 of the Decree Law sets out when you can reclaim input VAT paid before tax registration. It allows input tax to be reclaimed “provided that goods and services were used to make supplies that give the right to input tax recovery upon tax registration”.
Food and beverages sold from your kiosk will be subject to output VAT so this satisfies the condition to reclaim the VAT you paid on the purchase of the kiosk. Other preregistration expenses follow the same rules and you need to consider each one individually and determine if it was or will be used to make taxable supplies. Any expenses not directly attributable to future taxable supplies cannot be reclaimed.
For example, if you purchased food packaging before you were VAT registered and used it post registration as part of your supply of food on which you charged your customers VAT then this would satisfy the conditions for reclaim. Conversely, any packaging used on supplies to customers before you were VAT registered, and on which customers were not charged VAT, would not be deductible. You should include all pre-registration VAT that you wish to reclaim on your first VAT return post registration.
Lisa Martin, a chartered accountant with over 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to pf@thenational.ae