It is common in most countries where value-added tax (VAT) has been implemented that the tax paid on the majority of business expenses can be offset or even recovered as input tax. However, some expenditures do not qualify for tax recovery.
Within the UAE it is a similar case: some B-2-B VAT can be recovered. It is important that businesses distinguish between irrecoverable and recoverable input tax to offset, claim and pay the correct amount of tax in their accounts.
The VAT law in the UAE provides provisions which allow businesses to recover VAT paid on inputs in certain cases. The law states that the input tax that is recoverable by a taxable person for any tax period is the total of input tax paid for goods and services which are used or intended to be used for making any taxable supplies.
Input tax may include VAT paid on imports, domestic purchases and any VAT self-assessed by the businesses such as VAT paid on the purchase of digital services. Executive regulations on the law also states supplies on which VAT can’t be recovered. An example of this would be entertainment services to anyone not employed by the person, including customers, potential customers, officials, shareholders or other owners or investors.
As a definition, input taxes are value added taxes due from or paid by a VAT-registered person in the course of trade or business on importation of goods, or local purchase of goods, properties, or services from a VAT-registered person.
For further information on recoverable Input tax, please visit the Ministry of Finance website and view Article 54 of the Federal Decree – Law No. (8) of 2017. Alternatively if you require specific advice, please contact us at the BCB and we’ll put you in touch with an appropriate advisor.