Time-frame for Recovering Input Tax

The “VAT Law” and the “Executive Regulations” have explained that taxable persons are permitted to recover input taxes they have incurred in the tax periods, provided that they are related to business or commercial purposes, and not for personal purposes.

What is “Input Tax”?

Input tax is the value-added taxes that taxable persons have paid through-out a tax period to their suppliers or service providers, in return to goods or services that are related to business or commercial purposes. As explained earlier, the Federal Tax Authority have permitted taxable persons to claim those taxes through the VAT reports that are submitted at the end of each tax period, provided that all necessary documents are available. For a taxable person to be able to recover input tax, the following conditions must be satisfied:

1- A tax invoice must be received by the taxable person; and 2- The presence of an intent to make the payment of the consideration (consideration: amount including tax).

In many cases, the supplier and the recipient might agree that the consideration shall be paid within 3 or 6 months, in other words, in a different tax period. In that case, the recipient of the supply shall still be able to claim the tax input in the same tax period where the supply has been made, only if there is an intent to make the payment within the agreed time-frame. If the recipient then has not made the payment within the agreed time-frame, then the recipient shall reverse the tax input claimed previously, in the immediate next VAT report. Which means that, the recipient shall payback the amount claimed from the Federal Tax Authority, as he has not made the payment of the consideration to the supplier.

As per the law, if a taxable person did not claim the input tax through the VAT report corresponding to one tax period, they can still claim it in the immediate next tax period. If it is still not claimed in the immediate next tax period, then the taxable person shall submit a voluntary disclosure, in which it should alter the input tax reported in the VAT report of one of the two tax periods.

As mentioned earlier, companies shall only have the right to recover input tax paid by taxable persons that are pertaining to business or commercial purposes. It is not allowed to claim taxes paid on purchases or expenses that are made for personal purposes such as, personal phone bill.

It is very important for taxable persons to define whether the tax invoice is pertaining to business purposes or not before submitting VAT reports, because the amounts that taxable persons declare in the VAT input section of the VAT report affects the net VAT payable or receivable, which means that taxable person might end up paying or recovering amounts that are unequal to the amounts that they should actually pay or recover, respectively.

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You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat , Excise, Customs, Corporate Tax, Transfer Pricing)  for all GCC Countries in the Law Section of GCC FinTax.