Timeframe for recovering Input Tax in UAE

The Federal Tax Authority has issued a Public Clarification (VAT P017) for “Timeframe for recovering Input Tax”. This Public Clarification clarifies the FTA’s position relating to

Input tax must be recovered in the first tax period in which two conditions are satisfied:

• The tax invoice is received and
• An intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed

It is important to note that one should receive the tax invoice from the supplier and intention to make the payment is formed. In many cases the intention to make the payment arises after certain internal process. In the case of a manufacturing industry, intention to make the payment for raw material is generally formed after completion of quality control. Unless the quality control approves, the company doesn’t have an intention to make the payment. Hence, the second condition, intention is formed on the date when the quality control accepts the raw material. Similar situation arises in construction industry.

Therefore, the taxable person should refrain to claim the input when tax invoice is received and intention to make the payment is not formed.

What happens if the input tax is not claimed in the first tax period when both the conditions are satisfied?

• The taxable person can claim in the next tax period subsequent to the first tax period in which both the conditions were satisfied.
• In case, taxable person miss to claim the input tax in the subsequent tax period , the taxable person should recourse to the voluntary disclosure.

What happens if the input tax is claimed but the taxable person fails to pay the supplier after the expiry of 6 months from the due date of payment?

• Taxable person should reduce the input tax in the VAT Return in the tax period following the expiry of the six-month period and
• Once the payment is made, the taxable person will be entitled to recover the input tax in subsequent tax period.