Input VAT you can't recover in the UAE: the costs that catch businesses out

Recovering the VAT you pay on business costs is one of the main benefits of being VAT-registered. But not every dirham of VAT on your expenses is recoverable, and claiming the wrong ones is one of the most common findings in an FTA audit. Here are the costs that catch businesses out.

1. Entertaining people who aren't your employees

VAT on entertainment provided to customers, potential customers, suppliers, officials or shareholders is generally blocked. That includes hospitality such as meals, drinks, accommodation, event tickets and trips. A client lunch at a restaurant carries VAT you usually can't claim.

Entertainment for your own employees is treated differently and can often be recovered, for example an internal team event. The distinction is who the entertainment is for.

2. Cars available for private use

VAT on buying, leasing or renting a motor vehicle that's available for an employee's personal use is blocked, along with the VAT on running it. Vehicles used only for the business, such as delivery vans or a taxi fleet, are a different case.

3. Goods and services for your staff's personal use

Where you give employees goods or services for their personal use at no cost to them, the VAT is generally not recoverable. The exception is where you're legally required to provide them, for example under UAE labour law, or where you charge the employee for them.

4. Costs that relate to exempt supplies

If your business makes exempt supplies, such as residential rent or some financial services, the VAT on costs used to make them isn't recoverable. Where a cost serves both taxable and exempt supplies, the VAT is apportioned. Zero-rated supplies are different: they're taxable at 0%, so VAT on the costs of making them generally can be recovered.

5. No valid tax invoice

To recover input VAT you need a tax invoice that meets the requirements, including the supplier's TRN. A till slip without a TRN, or an invoice made out to someone else, won't support a claim. Our guide to tax invoice requirements shows what to look for.

6. Bills you haven't paid within six months

If you claimed input VAT on a supplier bill and haven't paid it within six months of the agreed payment date, you're required to reverse that claim. When you do pay, it can be claimed again.

A simple test for every receipt

1. Is it a proper tax invoice, addressed to my business, with the supplier's TRN?
2. Is the cost for my business's taxable supplies, not exempt ones?
3. Is it entertainment for non-employees, a car available for private use, or a personal benefit for staff?
4. Have I paid it, or will I within six months of the due date?

This article is general information, not tax advice. Rules as published in November 2026; for your own circumstances, speak to your accountant or a registered tax agent.