Out-Law / Your Daily Need-To-Know

UAE clarifies timeframe for recovering input VAT

Out-Law News | 04 Feb 2020 | 1:29 pm | 2 min. read

Businesses operating "mature internal accounts payable procedures" should find no difficulty in complying with the newly clarified timeframe for recovery of input VAT in the United Arab Emirates (UAE), a Middle East tax expert has said.

Joanne Clarke of Pinsent Masons, the law firm behind Out-Law, was commenting after the Federal Tax Authority (FTA) in the UAE followed up a recent amendment it had made to its guide on input VAT apportionment special methods. The authority had added an appendix on common errors in order to ensure that businesses are approaching their apportionment calculations in the correct way, but has now clarified its approach to ensure timeframes are clear.

In the clarification (4 page / 848KB PDF), the FTA said due care should be taken in determining the “first” period in which all conditions for input VAT recovery have been met. This is important because a deduction should not be taken before all such conditions are met and from this first period, a taxpayer only has one additional tax period to take a deduction before they would fall within the remit of the UAE’s VAT voluntary disclosure regime in order to claim back input VAT on purchased goods and services.

Conditions which must be met before deduction entitlement arises in the UAE, in addition to holding a valid tax invoice and using the goods/services for taxable purposes, include a requirement that the invoice must be paid, or the purchaser must have an intention to pay, within six months of the end of the agreed credit period.

The FTA have clarified that an 'intention to pay' is not viewed as existing until the purchaser has processed the invoice through all normal invoice processing procedures, including approving the invoice for payment.

Clarke said many in the industry appeared to welcome the clarification.

“For seasoned tax professionals the FTA’s view on this matter comfortably aligns with expectations and mature internal accounts payable procedures,” Clarke said.

Clarke said the receipt of an invoice from a supplier would normally result in a number of recorded dates in a business’ systems, such as the invoice date, the date of receipt of the invoice, and the date of processing the purchase invoice into the accounting system. The latter date generally represents the date on which the business has received, analysed and processed a vendor invoice and is happy to proceed with payment.

Clarke said businesses with “thorough internal procedures and controls” for accounts payable and finance functions should incur little risk in deducting VAT on purchase invoices based on the processing date.

“This clarification shall therefore not create any further burden for taxpayers with dependable internal procedures,” Clarke said.

“Risk may arise for businesses where invoices are simply automatically posted without question and then assessed at a later date. The right to deduct in this case may not arise until the full assessment of the invoice is undertaken and a genuine intention to pay arises. This would create a lot of manual work in the VAT compliance process, which may be avoided through a health-check and updating of the internal invoice processing procedures,” Clarke said.

Clarke said businesses operating in the UAE should take care in assessing their entitlement to deduct VAT on purchases in their VAT compliance process, particularly as the FTA had recently been focusing on this area.