VAT Recovery in the UAE: How to Claim Input VAT Correctly

Taxpayers often discuss value-added tax (VAT) liability, which is, in fact, output VAT. However, there are cases when a refund claim for VAT is made from the tax authority, referred to as input VAT or recoverable VAT. The simple rule of thumb is that when input VAT exceeds output VAT, then there will be a refund claim. However, it is not as easy as we say. We need to understand the calculation, eligibility, and the whole process. In this blog, we envisage the overall process and the eligibility requirements for VAT recovery for UAE businesses.   

What is Input Tax Recovery in the UAE?

Companies pay VAT when there is a purchase or business expense, while they collect VAT on their sales. The tax collected on sales is payable to the government and known as output VAT. However, the tax paid on business purchases is receivable and known as input VAT. The calculation to calculate liability is straightforward:

VAT Liability = Output VAT less Input VAT

In case the input VAT is higher than the output VAT, then we will have a negative VAT liability or VAT recoverable. This amount is receivable from the tax authority (FTA) upon fulfilling certain conditions and documentation.

How is Input VAT Recovered?

VAT is primarily governed by VAT Decree-Law No. 8 of 2017. The basic tax management of VAT is done through EmaraTax (FTA Portal). It is where a business can claim input tax through monthly or quarterly VAT filings. However, if there is recoverable VAT, it may not be available as a cash refund. Instead, the business will be able to adjust it in future VAT filings and reduce the applicable liability and carry it forward to the next tax year. If there is still an excess amount available for refund after carry forward, then the taxable person may apply to the authority for a refund.

Always remember the basic rule:

If input VAT is higher than output VAT, then VAT is recoverable

If input VAT is lower than output VAT, then VAT is payable

Eligibility for Input Tax Recovery in the UAE

To claim input VAT, a business must satisfy all of the following conditions. However, it is always useful to consult an expert.

• The business must be registered for VAT with the tax authority.
• The expenses or supplies must be taxable supplies; standard or zero-rated, not exempt supplies
• A valid tax invoice must be available with the business, with an accurate VAT calculation
• The amount of VAT has been paid or is intended to be paid
• The expense must be wholly and solely for business purposes.

It is worth noting that expenses that are not solely for business purposes are not recoverable. These may include entertainment expenses, personal expenses, and so on.

How to Claim Input Tax Recovery Under VAT in the UAE

The process is not unique. It is automatically covered during the VAT filing process. However, the basic data must be accurate, and the required documentation must be secure and available during filing. Let’s formulate it in the form of a process:

• Verify invoices received from the suppliers. They must include all the relevant information, such as the VAT amount paid (complying with Article 59 of the UAE VAT Law).
• Ensure the invoices relate to taxable supplies and are only for business purposes.
• Enter the invoices in the accounting system correctly.
• Record the input VAT correctly in the books.
• Apply partial recovery rules if there are exempt supplies.
• Declare the input VAT correctly during the VAT filing on EmaraTax; correct period and amount.
• Claim a refund from the FTA.

The amounts of VAT charged and input tax recoverable by the taxable person are netted off in the tax return. The resulting amount is the net VAT payable to, or to be refunded by, the FTA (i.e., the net VAT position).

Documents:

• Tax invoices
• Import VAT documents
• Accounting records and expenses
• Other documentary evidence, if needed

Best Practices for Input Tax Recovery

Claiming wrong input VAT will not only result in penalties, but it can also halt business operations. Therefore, it is always useful to act proactively and use expert services from firms like CZTA. However, we recommend following best practices to streamline the filing process and claim refunds.

• Keep VAT documents (e.g., invoices) complete and secure.
• Verify invoices beforehand to avoid any last-minute panic.
• Apply the separate entity principle; separate personal expenses from business expenses.
• Reconcile VAT records regularly
• Seek professional advice

Why CZTA?

Creative Zone Tax & Accounting (CZTA) is a reputed tax and accountancy firm in the heart of the UAE: Dubai. With massive industry experience and a well-trained team, it has many advantages over other entities operating in the UAE. As a result, we are able to recover VAT for our clients smoothly and in compliance with UAE laws. CZTA is:

• Approved by Federal Tax Authority (FTA)
• Served over 36,000 clients since 2010
• An in-house trained team in the field of tax
• FTA-accredited tax agents

With our expertise and experience, we can assist our clients in:

• VAT return filing
• VAT optimization
• Input VAT and refund applications
• Reconciliations
• Tax audit support
• Customized support for mainland and free zone entities

For our tax & accounting packages, click here.

Summary

It is often thought that VAT can only be a liability, and therefore, it will be payable to the government. However, there is a case when it is recoverable and refundable. When a business makes a sale, it collects VAT on behalf of the government and pays it to the government later. Similarly, a business purchase results in a VAT outflow, and thus, it should be vice versa: refunded back to the business. In simple terms, when payable VAT (output) is lower than the VAT receivable (input), then the business will recover or get a VAT refund. However, there are conditions and documents needed to claim the refund. Entities must follow best practices to keep the overall tax responsibilities smooth and compliant.

Creative Zone Tax & Accounting (CZTA)

If you are a business trapped with an unclaimed VAT refund, we can professionally assist you. Our tax specialists will review your transactions and identify any input VAT. Furthermore, they will rectify any mistakes and ensure your business complies with VAT laws. CZTA provides end-to-end solutions for VAT recovery in the UAE. Contact us today.