Can I re­claim VAT my bank is charg­ing me on its fees?

The National - News - - BUSINESS MONEY & MARKETS - 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 LISA MARTIN

Q 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

A 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. First, 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.

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 cafe 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 pre-reg­is­tra­tion 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.

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