Time frame for recovering input tax
Article 55 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”) prescribes the time-period within which input tax should be recovered by a taxable person. This Public 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 Public Clarification also discusses the recourse available to taxable persons in the instance where input tax is not recovered within the prescribed time-period.
A concurrent reading of Article 55(1) of the VAT Law and Article 54 of the VAT Executive Regulations provides that input tax must be recovered in the first tax period in which the two conditions are satisfied:
- the tax invoice is received; and
- there is an intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment.
The FTA considers that the conditions of Article55(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.
In view of the above, before recovering input tax, a taxable person needs to substantiate that in addition to receiving a tax invoice, he has also satisfied the condition of forming an intention to make the payment within the prescribed period.
For the avoidance of doubt, please note that where 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.
It may be noted that 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.
If input tax is not recovered in the first two tax periods, a taxable person is required to submit a voluntary disclosure. The voluntary disclosure should amend the input tax reported in the VAT return of one of the two tax periods.
Ref : VATP006