Introduction
FTA recently issued a clarification to provide clarity on the time-period within which input tax should be recovered by a taxable person. This Clarification clarifies the FTA’s position relating to the interpretation of Article 55 of the VAT Law and discusses the time-period within which the input tax must be recovered. This clarification also discusses the recourse available to taxable persons in the instance where input tax is not recovered within the prescribed time-period.
Detailed Discussion
UAE VAT Law defines the time period within which the company can recover its input tax, which is the first tax period in which two conditions are satisfied;
- The tax invoice is received and
- An intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed.
Hence, the taxable person can claim Input Tax in the period where both above mentioned conditions are satisfied.
As per Article 55(1) of UAE VAT Law, one of the conditions is that the taxable person pays the consideration for the supply or any part thereof, the interpretation of which is the intention to make the payment before the expiration of six months after the agreed date of payment for the supply.
A taxable person may receive a tax invoice but may not have an intention to make the payment until the internal approval process for the invoice is completed. In such cases, the conditions of Article 55(1) of the VAT Law are not satisfied as the intention to make the payment before the expiration of six months after the agreed date of payment is not formed.
The FTA considers that the conditions of Article 55(1) of the VAT Law will only be met when the taxable person completes the internal approval process and forms an intention to make the payment within the prescribed period
Keeping the law and the above clarification in mind, the taxable person needs to evaluate both the conditions together and to make sure that the intention to pay is formed within the prescribed period.
To conclude
- When a tax invoice is received in one tax period and the intention to make the payment is formed in a later tax period, the input tax can only be recovered in such later tax period.
- Where the input tax is not recovered in the tax period in which both the conditions are satisfied, the taxable person can recover the input tax in the immediate next tax period.
- Input tax is not recovered in the first two tax periods, a taxable person is required to submit a voluntary disclosure for any of such periods.
- Where a taxable person fails to make the payment of consideration before the expiration of six months after the agreed date of payment, the taxable person should reduce the input tax in the VAT Return of the tax period following the expiry of the six-month period. However, once the payment is made, the taxable person will again be entitled to recover the input tax