The UAE Federal Tax Authority has provided the general public a clarification for UAE VAT regulations, particularly on the timeframe for input tax recovery.
Key Points Re: Input Tax Recovery Timeframe in UAE
- The credit for procurement that is made from a vendor can be recovered during the first taxation period in which conditions are satisfied in accordance with the Decree-Law Article 55 (1). Conditions include the tax invoice has been received from a vendor and the procurement’s recipient pays the consideration of the supply or at least a part of it.
- Executive Regulations Article 54 (2) makes a reference to Decree-Law Article 55 (1) in which it’s stated that payment will be considered as to be made if a person intends in making a payment prior to the expiry of six months following the agreed date for supply payment.
- Input tax has to be recovered during the first taxation period when conditions mentioned earlier are satisfied. In the event that tax input has not been recovered during the tax period wherein the conditions have been satisfied, it’s to be recovered by a taxable person during the following tax period.
- As soon as invoices are received by taxable entities, the intention in making payments should only arise once internal approval processes applicable to payment are completed.
- If tax input isn’t recovered during any of the first two taxation periods, then taxable entities are required in submitting a voluntary disclosure. This should amend the input tax that is reported during a VAT return filing in UAE for any of the first two taxation periods.
Take note: non-payment of consideration prior to the six months’ expiration date from the agreed payment date will have to be disclosed during the next filing of the VAT return. The input tax for the VAT turn for a tax period following the six-month period expiry has to be reduced. But, as soon as payment is actually made, then a taxable entity will be again entitled in recovering the input tax for a procurement.
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What details are required to submit to the FTA for recovering input tax?
To recover the input tax of a taxable person in UAE, the following details are to be submitted:
- Tax registration number – TRN is unique to every taxable person in the UAE. It is advised to verify three times if the TRN is actually correct so as not to cause delays or rejection with an application for input tax recovery.
- Excess refundable tax – this should be the total amount in AED. The formula for calculating the excess refund tax total amount is excess refundable tax = refunds – fines and penalties from violations. This should include refunds that are reported in the previously submitted VAT returns, as well as administrative penalties that are due except for the late registration penalty.
- Amount to be refunded by the FTA – this should be in AED. This is the amount that is equal to the excess refundable tax total amount or less than the excess refundable tax.
- Excess refundable tax remaining amount – this is the amount of excess refundable tax you will be applying for during the following tax period(s).
- Late registration penalties – this should be the total amount in AED. This refers to the penalties and fines that are imposed by the FTA on your business and whether you’ve settled the penalties or not. If you are free from any penalty, then there should be zero written on this category. The same applies if you have been charged with a penalty that you’ve already settled. For a penalty that is charged onto your business which you will be paying in full during the claiming of input tax, then the category should display the amount of penalty. If the refund amount of your business is negative following the penalty amount deduction, then the application will be rejected automatically following submission. For a refund amount that’s positive even after the penalty amount is deducted, then only the balance should be submitted to the tax authority for input tax recovery.
- Signatory and declaration – authorized signatory of a taxable person should read the declaration and approve of it for an application for input tax recovery to be considered valid.
Input tax recovery specialists in the UAE
It is a good idea to hire a tax professional in the UAE when recovering input tax. Not only will you gain peace of mind from knowing you have experts handling your business’ taxes, but you will also eliminate mistakes. Mistakes with VAT refunds in UAE can be very expensive for a business. Missed deductions can call for penalties. Also, you might trigger a letter of audit from the FTA. These are not the ideal scenarios for your business. At VAT Registration UAE, our seasoned regulated tax agents in Dubai will help you in eliminating errors. They will help ensure that your VAT returns are prepared accurately and correctly.