Time Frame for Recovering Input Tax Credit:
- Input tax is recoverable in the tax period in which the following conditions are met:
- Tax invoice is received; and
- Payment is made or intention to make payment to vendor within 6 months of agreed date of payment is formed.
- If input tax is not recovered in the above tax period – Recover input tax in immediate next tax period.
- On failure to make payment within 6 months of agreed date of payment, input tax must be reduced in the VAT return of tax period post completion of 6 months. Such input tax can be recovered again once payment is made.
- If input tax is not recovered in any of the above specified tax periods – Recovery to be made by submitting a Voluntary Disclosure with Federal Tax Authority (‘FTA’) for the respective tax periods. Filing of a voluntary disclosure triggers a fixed penalty of AED 3,000 (first instance)/ AED 5,000 (on repetition).
- Voluntary disclosure is required to be filed tax period wise.
- Perform cost benefit analysis before filing a Voluntary disclosure with FTA to recover the missed input tax.
- It is advisable to document an internal process to substantiate – date of receipt of tax invoices and date of formation of intention to make payment of such invoices.
- Need assistance with VAT assessment, filing, compliance or consultation in the UAE? A dedicated and specialised tax team at PKF UAE can assist you. www.pkfuae.com
