Recovering the VAT you’ve paid on business-related expenses, known as input VAT recovery, is a smart way to reduce your tax burden and improve cash flow. In this guide, we’ll walk you through how businesses in the UAE can recover input VAT, with clear steps, deadlines, and a handy checklist to make the process straight forward.

What Is Input VAT Recovery in the UAE?

Input VAT recovery lets VAT-registered businesses in the UAE claim back the VAT they’ve paid on eligible business purchases.

If your business earns over AED 375,000 annually, you need to register for VAT in UAE within 30 days. If your turnover is between AED 187,500 and AED 375,000, you can register voluntarily to take advantage of input VAT recovery. Once registered, you can reclaim the VAT on your purchases, making sure that only the final consumer bears the tax.

Example:

● If you pay AED5,000 in input VAT on your monthly purchases and collect AED 7,000 in output VAT from sales, you can offset the AED 5,000 input VAT against the AED 7,000 output VAT, meaning you’ll only need to pay AED2,000 in VAT.

How to Calculate Input VAT Recovery

Example Calculation:

● Purchase Price: AED 100,000

● VAT Rate: 5%

● Input VAT Paid: AED 5,000

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● Sale Amount: AED 140,000

● VAT Rate: 5%

● Output VAT Collected: AED 7,000

● VAT Payable: Output VAT- Input VAT = AED 7,000- AED 5,000 = AED 2,000

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If your input VAT is higher than your output VAT, you can claim the difference as a refund. If it’s lower, you’ll need to pay the balance to the FTA.

Steps to Recover Input VAT in the UAE

Step 1: Confirm Eligibility Before you begin, make sure you’re eligible to recover Input VAT in UAE. To do this, ensure your business is registered for VAT in UAE. This is mandatory if your taxable sales exceed AED 375,000 annually and optional if they fall between AED 187,500 and AED 375,000. Additionally, the goods and services you’re claiming VAT on must be used exclusively for taxable business activities.

Step 2: Keep Accurate Records Good record-keeping is essential. For each business purchase, make sure you have avalid tax invoice that includes:

● The supplier’s VAT registration number

● A detailed description of the goods or services purchased

● The taxable value of these goods or services

● The VAT amount Having an organized system—whether digital or physical—makes the VAT Online recovery process easier and helps avoid stress during audits

Step 3: Calculate Input VAT Next, calculate your input VAT. If you’re managing your accounts manually, review each invoice carefully to identify the VAT amount. Then, sum these amounts to determine the total input VAT you’re eligible to claim for the tax period.

Using a spend management tool can simplify this process by automatically tracking expenses, storing invoices securely, and calculating VAT.

Step 4: File Your VAT Return The UAE Federal Tax Authority (FTA) requires that VAT-registered businesses submit a VAT Return within 28 days after the end of each tax period. Your VAT Return should list your taxable supplies for the period, the output VAT you collected, and the input VAT you paid. Be sure to accurately report the total input VAT to avoid discrepancies. After filing your return, the input VAT you’ve claimed is usually refunded to your bank account by the FTA within a few weeks.

When to Claim Input VAT Recovery

You can claim input VAT in your first VAT return once you have:

1. Received a valid tax invoice.

2. Intend to pay the invoice within six months of the payment date.

For example, if you purchase office supplies with a VAT of AED 100 on May 1, 2024, and receive the proper tax invoice in January, you can claim the AED 100 input VAT when filing your VAT Return for the period ending May 31, 2024. Keep in mind the Input VAT Claim time limit in UAE when managing your returns to ensure you don't miss out on any eligible claims.

Correcting Disclosure Mistakes with Voluntary

If you spot an error in your VAT Return after it’s been submitted, don’t worry. The FTA allows you to correct mistakes through 'Voluntary Disclosure'. This option lets you fix errors without facing penalties. To do this, fill out the online form available on the FTA’s website, explaining the mistake and providing the correct details.

Input VAT Recovery Checklist

To make the process of recovering input VAT easier, here’s a quick checklist:

● Conditions for Input VAT Recovery:

○ Ensure the purchased goods and services are used for taxable business activities, such as those subject to the standard 5% VAT or zero-rated exports.

○ Always obtain a tax invoice for purchases where you plan to claim input VAT.

○ Make sure the tax invoice includes all necessary details about the purchase.

○ Ensure you plan to pay the full amount due within six months of the payment date

Supplies Not Eligible for Input VAT Recovery:

○ VAT-exempt items like public transport, bare land, or financial services.

○ Recreational expenses for entertaining clients or employees (except for business meetings).

○ Personal vehicle expenses for employees or owners.

○ Free goods or services provided to employees for personal use, such as gym memberships

Conclusion

Getting a handle on input VAT recovery can really boost your business’s cash flow. By reclaiming the VAT paid on business expenses, you reduce your VAT bill and have more money to reinvest in your business. However, managing VAT returns can be complex and time-consuming, especially if you’re entering data manually