Public Clarification on the Time-Frame for Input Tax Recovery
The Federal Tax Authority (“FTA”) recently issued a public clarification (VATP017) to VAT registered businesses and individuals in the UAE concerning the allowed time frame for input VAT recovery.
Input tax for a taxable person is recovered in the first tax period in which two conditions are satisfied:
- The tax invoice is received; and
- There is an intention to execute payment of consideration of the supply prior to the expiration of six months after the agreed date of payment is formed.
Upon receipt of a tax invoice, a taxable person can recover input tax only when an intention to make the payment within a prescribed period is formed. Therefore, if the intention to make the payment is formed in a tax period which is later than the tax period in which the tax invoice is received, the input tax can be recovered only in the later tax period.
It should be noted that a taxable person may receive a tax invoice but may not have an intention to make the payment until the internal approval process for the invoice is completed. In these circumstances, the conditions of Article 55(1) of the VAT Law are not satisfied as the intention to make the payment before the expiration of six months after the agreed date of payment is not yet formed.
It should be noted that where the input tax is not recovered in the tax period in which both the conditions described above are satisfied, the taxable person can recover the input tax in the immediate next tax period.
If input tax is not recovered in the first two tax periods, a taxable person is required to submit a voluntary disclosure. The voluntary disclosure should amend the input tax reported in the VAT return of one of the two tax periods.
Furthermore, in the event that a taxable person does not execute the payment of consideration before the expiration of six months after the agreed date of payment, the taxable person is required under the VAT laws and regulations to reduce the input tax in the VAT Return of the tax period following the expiry of the six-month period. Please note, however, that once the payment is made, the taxable person will again be entitled to recover the input tax.
Disclaimer on Use
The information presented is intended for general information only and is not meant to be a substitute for professional advice or to be used for decision-making.
Professional advice relies on an assessment and understanding of the specific situation for each person and, therefore, the application of changing laws and regulations in the UAE, will vary widely from case to case.
The information contained herein is based on facts available from sources we believe to be credible at the time of publication and is subject to change.