The first virtual workshop for tax agents organised by UAE's Federal Tax Authority (FTA)
Input tax deduction and segmentation - July 7, 2020
Objectives
• Provide a summary of specific questions raised by tax agents
• Clarify ambiguities related to some technical aspects by clarifying legal principles and some practical guides.
Methodology
• The Federal Tax Authority has received a number of inquiries from tax agents, and it is seeking to address them. Through this workshop to achieve the common benefit of tax agents.
• The Commission provides, through this workshop, a practical analysis of the points raised and an indication of them.
Time frame for recovery Input tax
Input Tax Refund Requirements
The taxable person may deduct the input tax paid for the exploration and / or services used (or intended to be used) to do any of the following:
Deduction is not permitted if the goods or services for which the inputs tax is incurred are not related to the above supplies!
When can the input tax be deducted:
• The taxable person has the option to deduct the input tax according to the tax return related to the tax period in which it was earned
The following conditions (or in the tax return related to the period that follows):
• For purposes of deduction of input tax, the taxable person is treated as having paid for the supply to the extent that a taxable person makes payment before the expiration of six months after the date agreed upon to pay the supply.
If the tax invoice is not correct and in accordance with Article (59) of the Executive Regulations, a tax cannot be deducted.
The input VAT deducted on the return is refunded :
Example 1
•Company A is registered for VAT purposes in the country and submits its tax returns on a monthly basis.
•Company A made an order that it would use on January 15, 2020, to be used for taxable supplies.
•Company A received the survey and the tax related to the supply on January 30, 2020.
•Before paying for the supply, all invoices must be approved by the relevant department that submitted the purchase order And financial management.
•The administration who submitted the purchase order confirmed that it had received the correct quantity and quality for the survey, it had not agreed to pay on 27 February 2020.
•The Finance Department has compared the tax invoice against budget allocations and agreed to pay on March 15 2020.
•The tax bill was paid in the next installment on April 5, 2020.
In which tax period is Company A entitled to claim recovery of the input tax?
Example 1 - Analysis
•Company A has the right to reimburse the input tax since it has acquired the goods to use to make subject supplies For tax.
•Redemption Timeframe - Conditions:
•Getting the tax invoice: January 30, 2020
•Payment will be made - availability to pay - after final approval: March 15, 2020
•Input tax is refunded in the tax return for March or in the tax return for April 2020, if it arises The intention is to pay only at the date of receiving final approval.
•If company A does not apply a mechanism for formal approval, and the intention to repay arises at the time of receiving the survey, then company A may The related input tax is recovered in the January 2020 or February 2020 tax return.
Example 2
•Company B is a company registered for tax purposes and submits its tax returns on a quarterly basis, with a maximum of February 28, May 28, August 28 and November 28.
•Company (B) has made an order that it will use January 15, 2020, to be used to make taxable supplies.
•Company (b) received the import and tax invoice related to supply on January 30, 2020.
•Before paying for the supply, all invoices must be approved by the relevant department that submitted the purchase order And financial management.
•The administration who submitted the purchase order confirmed that it had received the correct quantity and quality for the survey, it had not agreed to pay on 27 February 2020.
•The Finance Department has compared the tax invoice against budget allocations and agreed to pay on March 15 2020
•The tax bill was paid in the next installment on April 5, 2020.
In what tax period may Company (b) claim recovery of the input tax?
Example 2 - Analysis
•Company (B) is entitled to receive input tax since it obtained the goods to be used to make subject supplies For tax.
•Redemption Timeframe - Conditions:
•Getting the tax invoice: January 30, 2020
•Payment will be made - availability to pay - after final approval: March 15, 2020
•Input VAT refunded in the tax return related to the tax period ended April 30, 2020 or on December 31
July 2020, if the payment intention arises only on the date on which final approval is received.
•If company (B) does not apply a mechanism for formal approval, and the intention to repay arises at the time of receiving the survey, the company may (B) the input tax related to supply is recovered in the tax return relating to the tax period ended 31 January 2020 or April 30, 2020.
What will happen if the input tax is not deducted during the specified tax period?
•The taxable person may submit a voluntary permit to the Authority to recover the input tax that he has not claimed to be refunded.
•Last fine - 3000 dirhams for the voluntary permit presented for the first time, and 5,000 dirhams for each voluntary permit Then submit.
•Whereas, the tax payable in accordance with the relevant tax return was calculated with an ICCL as required, on the understanding that no A claim is refundable for inputable tax, so there will be no tax due for the authority, and therefore no tax will be charged.Proportional fine if this is the only correction.
•The proportional fine will be applied if the taxable person makes a CKLR from one amendment to the same voluntary declaration that In which the non-previously deducted tax is deducted, and as a result, the tax is declared less than necessary. In other words, it resulted in a correction of a tax payable to the Authority.
Input tax deduction in the event of a reverse charge mechanism
•When importing goods or services, the registrant must calculate VAT according to the reverse charge mechanism.
•The input tax that is incurred as a result of the back-up mechanism may only be recovered according to the normal redemption rules, It is not automatically recovered
For more guidance on this, please see
Input VAT refund relates to specific types of expenses
Expenditures associated with Covid-19 virus. The expenses of sterilizing workplaces and examining employees with a fee are general expenses.
•The input tax is recoverable to the extent that the taxable person makes supplies that are taxable.
•If the business makes taxable supplies only - the input tax is recoverable In full.
•If the business makes taxable supplies and tax-exempt supplies - it is tax Inputs are partially recoverable.
•Special Expenses - Input VAT may not be refunded unless employees bear these costs.
Marketing and entertainment expenses
•Marketing expenses are generally seen as general business costs.
•Input tax may be deducted to the extent that these expenses are borne to make taxable supplies, unless this supply is a supply of "Entertainment Services".
•Input tax deduction is not permitted for goods / services obtained for the provision of entertainment services, Even if these expenses are incurred for business purposes.
Marketing and entertainment expenses
•The term "recreational services" means all kinds of hospitality services, including the provision of the following:
•Residence;
•Food and drinks;
•Access to events or events;
•Tours provided for the purpose of entertainment and enjoyment.
•Exclusions - that is, for which the input tax may be recovered:
•Short-term residence granted to new employees - for a period not exceeding one month.
•Provide accommodation for employees who are required to move away from their homes and usual place of work for at least one night.
•Providing hospitality services in a setting like providing food and drinks in the usual context of business meeting, as stated in General illustration VATP 005.
•Events open to the public.
Marketing and entertainment expenses - Example 3
•Company A requires employee (B) to make field visits to the Emirate of Abu Dhabi. Officer (B) resides in the Emirate of Dubai
He works in the company’s office (A) located in Dubai. And since this field visit will take days, the company will To provide hotel accommodation for Officer B throughout this visit.
Is company (a) allowed to recover input tax?
Marketing and entertainment expenses - Example 3 - Analysis
Yeah. Since employee (B) has to move away from his home and usual place of work, company (A) may recover the input tax
Incurred on hotel accommodation, provided that the general redemption rules are observed.
Marketing and entertainment expenses - Example 4
•Company (B) launches a new product group and invites many celebrities, customers and suppliers to attend a party that includes it Show shows, plus food and drink. Is company (b) entitled to recover input tax?
Marketing and entertainment expenses - Example 4 - Analysis
No. The company (B) provides entertainment services, so the input tax is recovered from recovery despite incurring
Marketing expenses with the intention of promoting new products and making subsequent taxable supplies when selling these new products.
Marketing and entertainment expenses - Example 5
•Company C, a real estate development and management company, is organizing an event to promote a new property consisting of outlets.
Varied retail sale.
•The public can see the shows organized in outdoor amusement parks, where these events are available to the public. Can Company (C) recover the input tax?
Yeah. Company (c) may recover the inputs tax on marketing expenses, as the activities are available to the public in general and they are
Directly related to increasing the number of visitors, according to the regular redemptions rules.
Vehicle related expenses
•Use of vehicles for business purposes only
•Input tax may be recovered from the purchase or rental of vehicles.
•Input tax may be recovered from operating costs such as maintenance and fuel.
•Maintain appropriate records of evidence that use is for business purposes only.
•For partial or total private use
•Input tax may not be recovered from the purchase or rental of vehicles or from operating costs such as maintenance And fuel
Theft, fire and other conditions beyond the control of the taxable person
•It is recognized that the commodities obtained by the business, or those that the business supplies, may be exposed to Damage due to conditions beyond the control of the taxable person.
•However, these circumstances and events will not constitute any change regarding use, and therefore will not entail a cold commitment Input VAT claimed before
•In spite of this, the taxable person is obligated to obtain and maintain what meets the occurrence of the disadvantage and the resulting harm.
It includes the following, which include the details of Al-Malal:
•Police report in the event of theft.
•Fire station report (civil defense) / municipality in case of fire.
•Evidence that the dam was damaged and crossed out.
For more guidance on this, please see
•Article (55) of decree by law.
•Article (53) of the executive regulations.
•General clarification regarding VAT - non-refundable input tax - recreational services VATP 005
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