Expenses on which Input VAT Deduction is Blocked

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Yarab A | Updated on: September 16, 2021

Input VAT deduction allows businesses to claim input VAT deduction on the purchases or expenses if they are used for making taxable supplies or related to business activity. While on most purchases or expenses you can make a claim, certain expenses are blocked for input VAT deduction. The Oman VAT regulation specifics such expenses that are blocked for input VAT deduction. In this blog, we have detailed the list of expenses on which input VAT recovery is restricted.

Purchases/Expenses Eligible for Input VAT Deduction

Goods or Services used for entertainment services

Input tax paid on entertainment expenses that are not provided in the normal course of business is blocked for input VAT deduction. For example, accommodation, hospitality etc. which are not provided within the normal course of business.

Motor vehicles and related goods and services for personal use

Input tax paid on motor vehicles used for personal use is blocked for input VAT deduction. This restriction also applies to goods and services such as maintenance, repair, insurance etc. related to the motor vehicle used for a non-business purpose.

Here, a motor vehicle refers to any vehicle which is designed or adapted for carrying not more than 10 passengers including the driver. This restriction is not applicable in the following case:

  • Motor vehicles used in a vehicle rental business to customers
  • Motor vehicles registered as an emergency vehicle

Provision of food, beverage and catering services

If the nature of expense is towards food, beverage, catering services or anything of similar nature, input VAT recovery on such purchases or expenses will be restricted.

Goods and services used for exempt supplies.

Exempt supplies are those on which VAT is not levied. If you have paid VAT on expenses or purchases that are used for making exempt supplies, the input VAT deduction will be restricted.

For example, Al-Ameen LLP purchased raw materials worth 1,000 OMR with VAT 5% i.e.,50 OMR. The raw materials are used to produce the finished product which is exempted from the VAT. Al-Ameen sold the finished products for 1,100 OMR.

In the above example, Al-Ameen will not charge VAT on their sale since the finished product is exempt from VAT. On the other side, they will not be allowed to claim the input VAT deduction of 50 OMR which was paid on the purchase of raw materials

In case, if it is partially used for making taxable supplies and exempt supplies, you will be allowed to recover input VAT deduction to the extent that is used for making taxable supplies. To calculate the partial exemption or recovery, the VAT regulation has prescribed the guidelines.

Goods or services used for personal use

The primary condition for claiming input VAT deduction is that goods or services should be used for business activity. In case, if these are used for personal use or used by employees, the input VAT deduction on such purchases or expenses will be blocked.

In case, if it is partially used for making taxable supplies and personal use, you will be allowed to recover input VAT deduction to the extent that is used for making taxable supplies. To calculate the partial recovery, the VAT regulation has prescribed the guidelines

For example, A-1 Electricals, an electronics store supplying TV’s, music systems, mobile phones etc. A-1 Electricals brought 10 Mobile Phones. Out of 10 mobiles, 9 were sold to customers and 1 was used for personal use by the owner. Here, input VAT deduction will be restricted to the extent of personal use.

Read more on VAT:

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