The UAE (United Arab Emirates) has officially released its COVID-19 VAT input tax recovery regulations. This was officially released in the form of a statement by the Federal Tax Authority (FTA) that clarified the recovery of VAT (value added tax) input recovery for expenditure related to COVID-19. The statement by the FTA came after a helpful online/virtual workshop held for tax agents. In this workshop, clarifications were issued by the FTA regarding the procedures and criteria for recovery of input tax that has been incurred for specific costs including those linked to COVID-19, entertainment and marketing expenditure, events beyond taxation control and vehicle expenditure.

Know UAE Sets out COVID-19 VAT Input Tax Recovery Rules

FTA has officially issued its clarifications likewise regarding expenditure linked to the COVID-19 pandemic. These heads include sterilization of offices/workplaces, employee testing and so on, which will be classified under the general expenses category. Input tax, according to the FTA, will be recoverable in case services and supplies made by the business in question, are taxable themselves. In case only taxable supplies are being made by the business, input tax will be completely refundable. Yet, in case there are tax-exempted and taxable supplies being made by businesses, input tax will be refundable partially. The FTA has also stated that recovery of input tax is not possible on expenditure incurred for testing families of employees unless the cost is borne by employees themselves.

Key aspects worth noting in this regard

Previously, there was a detailed clarification issued by the FTA regarding recovery of input tax as a vital component of value added tax or VAT obligations for businesses. Recovery of the same was allowed for an extended period of time, thereby enabling greater convenience for several companies. FTA had previously confirmed that companies may recover input taxes within the first period of taxation or the following one, post receipt in invoices and forming intentions for paying for supplies.

This move, according to taxation experts, has gone a long way towards freeing up company cash flows, particularly for those organizations that were previously unable to meet all conditions within the mandated timeline. This is a major change for organizations which have foregone recovery of input taxes since they could not cater to changing tax refund conditions within the timeframe prescribed likewise. Hence, companies may recover input VAT credit in the quarterly/monthly tax period in case they satisfy two conditions in the first instance or in the tax period which follows. These conditions are the receipt of the tax invoice and intention of making payments for supplies prior to the expiry of 6 months post the agreed date of payment.

Input tax refers to the specific taxes paid by people upon purchases of supplies (inward). VAT comes with a key clause in the UAE which is the recovery provision for taxes which are paid already on inputs. People can lower the input tax value that is eligible for recovery from their payable taxes. The balance amount then has to be paid as the final tax. FTA has also subsequently clarified that intention for making payments will only be formed upon the basis of the internal invoice approval procedure getting completed. In case a taxable individual does not make consideration payments before the expiration of 6 months post the date agreed for payments, he/she should lower the input tax in his/her VAT return for the tax period thereafter. Upon making the payment, taxable persons will once again be eligible for input tax recovery. For assistance with VAT filing in UAE, registration, company incorporation, auditing, accounting and a whole host of other services, GCC Filings is your best bet in the UAE.