The Federal Tax Authority (FTA) in the UAE has issued a public clarification vide Number VAT017 discussing the time-frame for recovering the Input VAT by a taxable person.
Through the publication clarification, the authority states that a taxable person shall become eligible recover Input VAT only in the tax period in which he receives a tax invoice and he has formed an intention to make the payment to the supplier within six month after the expiry of agreed date of payment.
Let us analyze the provisions of the relevant Articles of the UAE VAT law in the light of the said public clarification on time-frame for recovering the Input VAT.
When can you recover Input VAT in the UAE?
Article 55 of the Federal Decree Law on Value Added Tax in the UAE states that the recoverable Input VAT can be claimed by a taxable person in the first tax period in which:
- He receives and keeps the tax invoice from the supplier which meets the requirements of Article 59 of the Executive Regulation and
- He pays the consideration for the supply or any part thereof.
The Executive Regulation of the VAT Decree Law states that a taxable person shall be treated as having made the payment of consideration for a supply to the extent that the Taxable Person intends to make the payment before the expiration of six months after the agreed date of payment for the supply.
What does the recent public clarification explain about Input VAT recovery in the UAE?
Before the issuance of the clarification, the following were the major confusions among the taxpayers regarding the recovery of Input VAT in the UAE:
- If there is any delay on the part of the supplier to issues the tax invoice, then whether it possible to claim the input tax on such tax invoice upon its receipt which is after the expiry of two tax period from the date of tax invoice?
- Where the taxable person receives the tax invoice from the supplier well in time. However, if there is any delay by the taxable person to get the tax invoice approved for payment. Then in which tax period he become first eligible to recover the input tax on such invoice?
The public clarification clearly explains that for a taxable person to claim Input tax he should cumulatively satisfy two conditions i.e.
- He should have received the proper tax invoice from the supplier and.
- He should form an intention to make the payment of the consideration to the supplier within the expiry of six months after the agreed date of payment.
That means that, the receipt of tax invoice from the supplier in itself does not make a taxable person entitled to claim the Input Vat. It should be substantiated by him that he has formed the intention to make the payment of consideration to the supplier within the prescribed period.
It is further explained by the Federal Tax Authority (FTA) in the said clarification that there are cases where the tax invoices may be received by a taxable person but may not have the intention to make payment until the internal approval process for the invoice is completed. In such cases, it cannot be said that the conditions for Input VAT recovery as provided under Article 54 of the Executive Regulation has been satisfied until the taxable person has formed an intention to make a payment of consideration. In such cases, the taxable person become eligible to claim the Input VAT only in the tax period in which both conditions are satisfied or in other words the Input VAT recovery will be delayed to the later tax period in which the payment approval is made.
What if you have missed to claim Input VAT in the first Tax Period?
Article 55 of the Executive Regulation provides a second opportunity to the taxable person to deduct the recoverable input tax in the immediate subsequent tax period if he missed out to claim the input tax in the first tax period in which the both conditions of claiming the Input VAT is satisfied.
But if Input VAT was not recovered in the first two eligible tax periods, a taxable person may submit a voluntary disclosure to recover such Input VAT if required. And in such cases the provisions related to the Voluntary Disclosures like the time period within which the voluntary disclosures shall be submitted, penalty for submitting the Voluntary Disclosure etc. will be applicable.
Practical Example for better understanding of the provision related to Input VAT recovery in the UAE:
ABC LLC is a company incorporated in the UAE and is registered with the Federal Tax Authority for VAT(TRN) and having monthly tax period. The company have received a tax invoices from its supplier on 5th January 2020. According to the internal policy of the company, the finance department will approve for the payment only after receiving the certification from the procurement department that goods are delivered according to the specifications provided in the purchase order (PO). In the given example, the procurement department has received the goods on 20th January 2020 but have done inspection and certified only on 9th February 2020. The finance department have now approved for payment on 12th February 2020.
In this case ABC LLC have received the tax invoice on 5th January 2020 which is before doing the VAT return filing for the month of January 2020 but the approval for the payment is received on the subsequent tax period February 2020. So as explained in the public clarification by the FTA, the company will become eligible to recover the Input VAT while doing the VAT Return filing for the tax period February 2020. If ABC LLC fails to claim the input tax through the February month VAT return, they can deduct such Input VAT while VAT Return Filing for the month of March 2020.
Further, the taxable person should have the documentary trial to establish;
- When the invoice is received from the supplier
- When the intention to make the payment within the prescribed time limit was formed
Normally, when the internal approval for the payment on the invoices is made, it can be said that the intention to make payment is formed.
Another major explanation given in the public clarification is that where a taxable person claimed the Input VAT by satisfying both conditions of Input VAT recovery as provided under Article 55 of the Decree law and later on if he fails to make the payment of consideration to the supplier before the expiration of six months after the agreed date of payment, then he should reverse the Input VAT claimed 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 VAT.
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