A registrant deducts recoverable input tax from the output tax due for the same tax period, under the tax return relating to the period in which it received and retained the tax invoice or an alternative document and paid the consideration or part of it, in accordance with the conditions set out in the Decree-Law.
Calculating the Payable Tax
The Decree-Law provides that the payable tax for any tax period is calculated as the total output tax due during that tax period, less the total recoverable input tax of the taxable person during the same period. Deducting input tax is therefore the core mechanism of Value Added Tax that prevents double taxation at each stage of production and distribution.
What Is Recoverable Input Tax
The Decree-Law defines recoverable input tax as the total input tax paid on goods and services that were used, or intended to be used, for making taxable supplies, or for supplies made outside the State that would have been taxable had they been made inside it.
Conditions for Recovering Input Tax in the Tax Period
Recoverable input tax may be deducted under the tax return relating to the first tax period in which the following conditions are met:
- The taxable person receives the tax invoice and retains it containing the supply details, or retains an accepted alternative document.
- The taxable person pays the consideration or any part of it, in accordance with what the Executive Regulation specifies.
- The taxable person retains the tax invoice in accordance with the electronic invoicing system where required to do so.
Input Tax That Cannot Be Recovered
A taxable person may not recover input tax relating to tax paid under the reverse charge provisions on the import of goods whose final destination is another Implementing State, and the Executive Regulation specifies other cases in which input tax is excluded from recovery.
Effect of Missing the Recovery Conditions in Time
If a taxable person entitled to recover input tax fails to do so during the tax period in which the conditions were met, it may include the recoverable input tax in the tax return relating to the following tax period, rather than losing the right to deduct it.
Illustrative Example
Illustrative example: if a business receives a tax invoice for purchases related to its taxable supplies and pays the consideration within the same tax period, it may deduct the recoverable input tax from the output tax due in its tax return for that period, so that the payable tax equals the difference between the two amounts.
Legal References
- Federal Decree-Law No. (8) of 2017 on Value Added Tax — Article (53), Article (54) and Article (55)
For questions about your specific situation, you can ask the UAE Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.
