Based on the clarification announced by the FTA (Federal Tax Authority) for recovering input taxes in the United Arab Emirates (UAE) and the timeline for the same, a time period has been notified for recovery of input tax in case of a taxable individual. Based on the UAE VAT Law Number 8 in the year 2017, Input Tax in the country may be recovered via the submission of VAT returns for every taxation period by a company.
The VAT regulations in the UAE clearly state that input taxes paid for expenditure in the country may be claimed in the taxation time-frame when it is borne. The expenditure should be borne for making supplies which are taxable however. If the company does not claim the same in the very first taxation period, then it is claimable in the next taxation period as well.
The latest clarification that has been issued states that input taxes are recoverable in the tax period where these conditions are met:
- Receipt of tax invoice happens seamlessly
- Intentions are there for payment of supply to be done prior to the expiry of 6 months post the agreed payment date
Case Studies that you Time Frame for Recovering Input Tax in the UAE
Let us take an initial case study-
A company (let us say CD) got registered on the 1st of January last year and has a tax period (quarterly) between January to March. It will thus be filling its VAT returns on a quarterly basis as well. Suppose this company has bought raw materials to the tune of AED 35,000 with delivery being made on the 25th of March last year. Yet, the tax invoice was received only on the 15th of July with the date being 25th of March.
It is the responsibility of the supplier to deliver and issue tax invoices to buyers within a period of 14 days from the supply date. Recipients can recover their input on VAT within the first taxation period or subsequent one when they get the tax invoice and paid/intention to pay is clear against supply used for the taxable supply in question.
The solution in this regard should focus on non-compliance with the regulations on the supplier’s part. If the company, post getting the tax invoice, makes payment/payment intention/approval in July 2019, then they will have eligibility for recovery of input VAT in tax returns filed for July or any subsequent returns. Evidence should be clearly documented regarding delivery of invoices in the month of July and approval of payment post the receipt of the same.
In another case, let us say company CD has got registered for VAT and have a monthly return filling system. They got the tax invoice from a particular supplier on the 13th of January this year and owing to internal processes for verifying and approvals, the invoice was only accounted in the department on the 30th of March this year. Now, input taxes are only claimable upon normal rules of input recovery post receipt of tax invoice and payment intention. The company can claim the input VAT on expenses borne for taxable supplies in the very first tax return/subsequent return post adherence to input recovery conditions. The first period in this company’s case will thus be March this year and tax invoice can be considered for recovery of input VAT accordingly.
Another interesting case study
Let us then assume that company CD gets a tax invoice from its insurance partner which is dated on the 1st of April this year. The payments will be made in four installments, across 1st April, 1st July, 1st October and 1st January. The question here is whether full input VAT paid can be claimed by CD for the April taxation period although the payments are to be made in installments. The scenario is one of continuous supply where services are given for 1 year although payment is agreed in installments. The supply date will be the earliest tax invoice date.
Recipient of the invoice may recover input VAT in case the invoice is received and payment intention is made accordingly. The company can thus claim total input VAT paid in the month of April itself on the basis of the tax invoice that it gets.