Recovering VAT on Business Expenses in UAE

Input tax, VAT paid by a business for the purchase of supplies and services. VAT in UAE allows all registered businesses in the country to recover tax. That is paid for producing goods and services that are sold to clients and customers. Input tax that is eligible for a business to recover plays a significant role in a company’s cash flow, as well as operating expenses.

Also read: VAT Deregistration Process in UAE

Here Is an Example of How Input VAT Recovery Works

A company in Dubai purchases 10 CCTV cameras at Dhs1,000 for every set. For the purchase, the business pays VAT at the rate of five percent which is Dhs500. During the same month, the company sold 20 CCTV cameras to a customer for Dhs2,000 each. VAT collected at five percent amounts to Dhs2,000. 

In this scenario, the output tax payable by the business as it was collected from the customer is Dhs2,000. The input tax that may be recovered by the business is Dhs500. Tax payable is equal to the output tax payable minus the input tax recoverable.

Hence, the company will pay to the local tax authority only Dhs1,500 as Dhs500 (input tax) recovered. 

Input Tax Recovery Conditions

A registered business in UAE may recover VAT. That is paid on all purchases of goods and services that are utilized for business purposes (subject to conditions set by the Federal Tax Authority or FTA).

The conditions that a business has to satisfy are as follows:

• The supplies have to be used in making taxable supplies: Supplies on which VAT is liable in being paid which are called taxable supplies (input VAT recovery would only be allowed for input that is made in taxable supplies with the exemption of exempt supplies.
• A tax invoice was given to the recipient and stored: The recipient that is claiming recovery for input tax on business supplies has to make sure that a tax invoice that pertains to business supplies has been received and kept. Tax invoices are to show details of the supply made.
• The recipient has settled consideration for supply: The recipient that is claiming recovery for input tax has to pay or plan on making payment for reconsideration for supply in six months following the payment of the supply’s agreed date.

The provision of input tax recovery in UAE is important for businesses in the country that are registered for VAT. A business, therefore, needs to make sure that it can identify its supplies correctly on which VAT from business expenses (input tax) may recovered. A business also has to make sure that it fulfills conditions set of claiming input VAT and to claim input VAT on time.

All these will ensure that there is optimum cash flow for the business and that it has working capital. Work may made easier with the help of regulated tax agents in the UAE. They will handle the accounting of the VAT transactions of a business and process the VAT recovery for you. 

At Farahat & Co, we help businesses with their VAT recovery claims and all matters related to taxation in the UAE. Call us today as our team of VAT consultants in UAE is dedicated to making sure you are fully compliant with taxation laws in the country while leaving you enough time to focus on running your business! 

What Are the Items That I Can’t Recover Vat From?

VAT that is charged at zero percent can’t be recovered. Items considered as zero-rated in UAE include:

• Export of products and services that are outside the GCC.
• Supplies of certain transportation services via sea, land, and air e.g. ships and aircraft.
• International transportation, including related supplies.
• Certain investment-grade metals such as silver and gold of ninety-nine percent purity.
• Supply of certain medical and healthcare services, as well as supply of all relevant products and services.
• Supply of certain learning and educational services, as well as the supply of all relevant products and services.
• Newly constructed properties for residential use.

Can a Business Also Recover Tax From Exempt Supplies?

VAT is only paid for taxable supplies. As exempt supplies do not entail the payment of VAT, there is nothing for a business to recover. Exempt supplies in UAE include:

• Local passenger transport
• Bare land
• Residential buildings other than residential properties that are not considered zero-rated
• Financial services including financial services that are not performed for explicit fees, rebates, commission discounts, or a similar kind of consideration
• Life insurance and life insurance reinsurance

This list is subject to change at the discretion of the local tax authority. Which is the UAE Federal Tax Authority. We advise tax-registered businesses in UAE to always consult with tax experts regarding concerns and issues about VAT in UAE.