Key Highlights of the FTA Public Clarification : Time-frame for recovering Input Tax

UAE Federal Tax Authority has recently published a very important public clarification on “Time-frame for recovering Input Tax” (VAT Public clarification - VATP017).

Below are the key highlights of the FTA Public Clarification:

Conditions for Input VAT recovery:

• Input Tax must be recovered in the first tax period in which the following conditions are satisfied:

1. 1. Receipt of tax invoice; and
   2. Intention to make the payment of the consideration before the expiration of six months after the agreed date of payment is formed

• Both the conditions need to be satisfied. This implies that if the person does not have an intention to make payment with in six months of agreed date, Input VAT cannot be recovered only on the basis of receipt of Tax Invoice from supplier.

In view of the above, before recovering input tax, a taxable person needs to substantiate that in addition to receiving a tax invoice, he has also satisfied the condition of forming an intention to make the payment within the prescribed period.

• If the Intention to make the payment (internal approval process for the invoice is completed) is formed in a tax period, later than the tax period in which the Tax Invoice was received, Input VAT can be covered in a later tax period.

What if the Input VAT is not recovered with in prescribed time period?

Where the input tax is not recovered in the tax period in which both the conditions are satisfied, the taxable person can recover the input tax in the immediate next tax period. If the taxable person fails to recover the Input VAT in subsequent tax period also, he is required to submit a voluntary disclosure.

What if the consideration is not paid with in prescribed time limit?

If the Taxable person fails to pay the consideration with in six months from agreed date:

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

Article prepared by: Mr. NAIMABBAS A VIRANI

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