Input tax is the tax that a taxable person pays or a business on the purchase of various good or services or while during imports related to taxable supplies. E.g., a shopkeeper purchases goods from a wholesaler and pays tax for the same. The Federal Tax Authority (FTA) in the UAE has special provisions in place for Input Tax recovery.
Input Tax recovery refers to the amount repaid by the FTA to all taxpayers who fulfill the conditions for Input Tax Recovery. According to UAE VAT provisions, a taxable person can reduce the value of eligible input tax from the total tax payable and pay only the balance amount as output tax. It is important as it has an impact on the current cash flows and ongoing expenses incurred by a Company during the financial year.
Conditions to follow for Input Tax Recovery
Only VAT registered businesses or a person is eligible for Input tax recovery in the UAE. All the non-tax registrants are ineligible for claiming the input tax recovery. It is mandatory to meet the following conditions for input tax recovery.
Only taxable supplies are eligible for Input tax recovery
An important condition for input tax recovery is that it is valid only in connection with taxable supplies. This refers to the supplies on which UAE VAT is levied. One cannot claim input tax related to the exempt supply as they are invalid for input tax recovery.
Recipient of the input tax recovery to obtain and secure the tax invoice
Tax invoices contain details of those supplies on which input tax recovery claim is made. The receiver must maintain proper tax invoices for reference as well as maintaining records. This practise is important when claiming input tax recovery on supply. Additionally, the tax invoice must also be as per the FTA guidelines & UAE VAT regulations.
Timely payment of consideration for the supply
For recovering input tax, it’s important that the receiver pays or intends to make the payment of consideration for the supply within the tenure of six months which starts from the agreed date of payment for the supply.
The recipient must be a taxable person and must register for VAT in order to claim input VAT recovery
Input tax recovery is important for a proper filing of VAT returns in UAE and to avoid any tax penalty. Certain input VAT is not recoverable as per UAE VAT regulations though it qualifies above conditions. Taxable persons or businesses need to identify correct supplies on which input tax recover is possible. They should also meet the necessary conditions for claiming Input Tax.
With Shuraa tax consultancy services, know everything about input tax recovery and its necessary conditions. Get the best tax service and help with your input tax-related queries with Shuraa Tax Consultants and Accountants qualified team of tax agents and consultants. Call or text us at +971 508912062 or send an email to info@shuraatax.com.
