Expenses on Which Input Tax Recovery is Blocked

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Tally Solutions, Feb-05-2020

The Bahrain VAT law allows the taxpayer to recover the input tax paid on purchases or expenses if they are incurred for the business purpose. Anything which is used for non-business purpose or personal use, the input VAT recovery is on those expenses are restricted, meaning the taxpayer cannot claim input VAT. On this note, the Bahrain VAT regulation has clearly specified the list of expenses on which input Tax recovery is blocked.

Let us understand these expenses on which input VAT recovery is blocked irrespective of the purpose for which it is used.

Entertainment Expenses

Input tax paid on entertainment expenses which are not provided in the normal course of business is blocked for input VAT recovery. These expenses include accommodation, hospitality, food and drinks which are not provided within the normal course of business.

Events, Functions and Trips

Input tax paid for accessing events or functions, and for trips for recreational purposes will be disallowed from input VAT recovery. This includes concerts, shows, social dinners or outings, team-building events and activities when not provided as part of a business meeting.

Goods or Services used by the Employees

Input tax paid on goods and services to be used by employees for free for personal use will be blocked for input VAT recovery. This includes gym subscription, mobiles phone usage for personal purpose etc.

However, if it is a legal obligation for an employer to provide those goods or services to employees under any of the laws in Bahrain, the taxpayer will be allowed to recover input VAT. For example, input VAT can be recovered by an employer in respect of health insurance for employees as it is the legal obligation of an employer under labour law requirement to provide this.

Motor Vehicles used for Personal Use

Input tax paid on motor vehicles provided to employees and on related services such as maintenance, repair, insurance etc. for the non-business purpose will be blocked from recovery. This implies that taxable persons can only recover the right portion of input tax that is attributable to business use. However, the above restriction does not apply to the following categories of motor vehicles:

  • Vehicles that are rented by rental companies.
  • Vehicles registered and used for emergency purposes such as police cars, ambulances, fire engines.
  • Taxis and buses licensed by the Ministry of Transportation and Telecommunication.
  • Buses, trucks, cranes and other similar vehicles which are used in the course of business.

The above-mentioned expenses are various instance of expenses which are blocked for input VAT recovery. Utmost care should be taken by business in identifying the purchases on which the input VAT recovery is fully allowed, and the ones which are blocked.