What is an Input Tax and how you can recover it?

Input tax is the tax paid by a taxable person or a business on the purchase of various goods or services or while during imports related to taxable supplies. E.g., a shopkeeper purchases goods from a wholesaler and pays tax for the same. In UAE, there is a provision laid down by the Federal Tax Authority (FTA) for recovering the Input Tax.

 Input Tax recovery refers to the amount repaid by the FTA to all taxpayers who fulfill the conditions for Input Tax Recovery. According to UAE VAT provisions, a taxable person is allowed to reduce the value of eligible input tax from the total tax payable and pay only the balance amount as output tax. It is important as it has an impact on the current cash flows and ongoing expenses incurred by a Company during the financial year.

 Conditions to follow for Input Tax Recovery

Only VAT registered businesses or a person is eligible for Input tax recovery in the UAE. All the non-tax registrants are ineligible for claiming the input tax recovery. The following conditions necessarily be fulfilled for the input tax recovery.

Input tax is recovered only on taxable supplies

An important condition for input tax recovery is that it’s valid only in connection with taxable supplies, which means the supplies on which UAE VAT is levied. One cannot claim input tax related to the exempt supply as these are seen as invalid for input tax recovery.

Recipient of the input tax recovery to obtain and secure the tax invoice

Tax invoices contain details of those supplies on which input tax recovery claim is made. So while claiming input tax recovery on supply, the receiver should maintain tax invoices properly for future references and maintaining records. The tax invoice must be as per FTA guidelines and UAE VAT regulations, in order to entitle for input VAT recovery.

Timely payment of consideration for the supply

For recovering input tax, it’s important that the receiver pays or intends to make the payment of consideration for the supply within the tenure of six months which starts from the agreed date of payment for the supply.

The recipient must be a taxable person and must be registered for VAT in order to claim input VAT recovery

Input tax recovery is important for a proper filing of VAT returns in UAE and to avoid any tax penalty. Certain input VAT is not recoverable as per UAE VAT regulations though it qualifies above conditions. Taxable persons or businesses need to identify correct supplies on which input tax could be recovered and should meet the conditions required for claiming Input Tax.

With Shuraa tax consultancy services, know everything about input tax recovery and its necessary conditions. Get the best tax service and help on your input tax-related queries with Shuraa Tax Consultants and Accountant’s qualified team of tax agents and consultants.

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