Case Studies on Time Frame for Recovering Input Tax in the UAE
Time Frame for Recovering Input Tax in the UAE
Public clarification (VPTP017) issued by the Federal Tax Authority (FTA) in respect of the time frame for recovering input tax in the UAE prescribes the time period for claiming Input VAT in UAE by a taxable person.
The UAE VAT law states If the business is registered under VAT, they can claim a refund of tax paid on expenses (the end consumer cannot claim any input tax refund), in the tax period in which it is incurred. But if the company fails to claim in the first tax period then, it can be claimed in the subsequent tax period. The expense should be made for making taxable supply.
Reference of the Law
- As per Article 55(1) of Federal Decree-law No. (8) the Recoverable Input Tax may be deducted through the Tax Return relating to the first Tax Period in which the following conditions have been satisfied:
- The Taxable Person receives and keeps the Tax Invoice as per the provisions of this Decree-Law, provided that the Tax Invoice includes the details of the supply related to such Input Tax, or keeps any other document pursuant to Clause (3) of Article (65) of this Decree-Law in relation to the Supply or Import on which Input Tax was paid.
- The Taxable Person pays the Consideration for the Supply or any part thereof, as specified in the Executive Regulation of this Decree-Law or there is an intention to make the payment of the supply before the expiration of six months after the agreed date of payment.
- If the Taxable Person entitled to recover the Input Tax fails to do so during the Tax Period in which the conditions stated in Clause (1) of this Article have been satisfied, he may include the Recoverable Tax in the Tax Return for the subsequent Tax Period.
Date of supply provisions and time period to issue Tax Invoice
As per the provisions of Article 25 of the Federal Decree-Law, it specifies the date of supply on which tax shall be calculated, which shall be earliest of any of the following:
- The date on which Goods were transferred if such transfer was under the supervision of the supplier.
- The date on which the Recipient of Goods took possession of the Goods, if the transfer was not supervised by the supplier.
- The date on which the provision of Services was completed.
- The date of receipt of payment or the date on which the Tax Invoice was issued.
As per Article (67) Date of Issuance of Tax Invoice, a Registrant shall issue a tax invoice within 14 days of the date of supply as stated in Article 25 of Decree-Law.
Eligibility of recovering input tax in the UAE under different situations.
Case Study 1:
Company MNO is registered under UAE VAT Law. They are in the Yarn industry and file a monthly VAT return. They have received a tax invoice of AED 3470/- relating to expenses incurred by company on 24th October 2019 from one supplier, Due to some internal approval and verification process in the company, the invoice was recorded in the accounts of company only on 27th Dec 2019.
As per FTA public clarification issued, a registered person can claim input tax in the UAE only after the tax invoice is received, and payment intention is made. As per the UAE VAT Law, the company can claim the input vat on the expense of AED 3470/- incurred for making taxable supplies, in the first tax return or the subsequent tax return when the conditions for input tax recovery is satisfied.
In the above case, the company has received the tax invoice in the month of October. So, the company could have included this invoice in the VAT return for the month of October. But because of the approval process and payment intention it was recorded only in month of December 2019.
In this example, the company received the invoice in October but its approval process to prove the payment is completed in December 2019. Considering this we can say that the first period satisfying both invoice receipt and payment intention is in December 2019. Hence, the company can claim the VAT input on such invoice in the return of December 2019.
Case Study 2:
Company XYZ is VAT registered on 5th April 2019 and it have a quarterly tax period (April to May and quarterly) and will file VAT return quarterly. They have purchased goods worth AED 36750/- which was delivered on 27th April, 2019. But they received the tax invoice dated 27th April, 2019 only in 18th August, 2019. Company’s Accountant is in confusion it should be claimed or not? , as it is received late. Kindly advice the accountant on the required VAT treatment.
As per UAE law, it is mandatory for suppliers to issue the Tax Invoice within 14 days from the Date of Supply and recipient can recover VAT input in the first period or subsequent period when the tax invoice is received and consideration is paid or intention to make the payment is made, against a supply which is used for making taxable supply.
In the above example, the company did not receive a tax invoice on 27th April, 2019. The tax invoice was received only on 18th August, 2019 but was dated as 27th April, 2019 which was the date of actual supply?
As per FTA public clarification issued, a registered person can claim input tax in the UAE only when tax invoice is received, and payment intention is made. Hence, in given example, the tax invoice was received in August, 2019 even though it is dated 27th April 2019. This is a default from the side of the supplier. If the company after receipt of the tax invoice makes the payment or payment intention/approval is made in August, 2019, then the company will be eligible to recover the input VAT in the tax return for the month of August or subsequent return.
It is also advised to have documented evidence that the invoices are delivered only in August and payment approval is made after the receipt in August.
Case Study 3
Company WXY is a registered person under UAE VAT and file VAT return monthly. The company received a Tax invoice on 20th February 2019 and claimed this input VAT for tax period February 2019 itself. The due date for payment was on 30th March 2019. But the company failed to pay the amount to the supplier till November 2019 as a reason of some cash flow difficulties. Is there any Tax adjustment required? Also, what should the company do if it makes the payment on 10th December 2019?
In the above Case Study, the company received the tax invoice on 20th February 2019 and Claimed this input in the return of month February itself. At the time of recording that invoice, the company had the intention to make the payment within 30th March 2020 so they claimed input VAT according to the provisions. But the company failed to pay the amount even after 6 months from the due date.
According to the public clarification given by FTA, when a taxable person fails to make the payment within six months from the due date of payment, he should reduce the input tax in the VAT Return for the tax period after the expiry of the six-months. But whenever the payment is made in the future the taxable person will again be entitled to claim the input tax in the UAE.
In the given example, since the company has failed to make the payment within 6 months from the Due date of payment, it should reverse the input VAT in the next tax period immediately after six month period ending ie, after September 2019. The company will be eligible to recover the VAT later after making payment, on 10th December 2019 as mentioned in the example.
Case Study 4
Company PQR received a tax invoice dated 1st April 2019. Company will Pay in 4 installments as below;
- 1st April 2019
- 1st July 2019
- 1st October 2019
- 1st January 2019
Is it possible for the company to claim full input VAT in tax period April even though the payments are to be made in 4 installments?
In this given transaction, there is a continuous supply where service provided for a period of 1 year, but payment is agreed to be paid in multiple installments. In this transaction the date of supply will the earliest event which is the tax invoice date in the given case. he is eligible to recover the input VAT if the tax invoice is received and the payment intention is made. A tax invoice for the full supply is issued on 1st April 2019 & the payment dates are agreed mutually into 4 installments.
According to the public clarification, a taxable person can recover this input tax in the UAE when it has received the tax invoice and the payment intention is made. So, the company can claim the total input VAT in the month of April itself based on the tax invoice received.