Reclaiming VAT on Expenses in the UAE
In this case study, we will learn about reclaiming VAT on expenses in the UAE along with the applicable provisions of the UAE VAT Law.
Facts of the case: ABC LLC is a trading company having its operations in Dubai. On 28th March 2019, they have purchased goods worth AED 1 Million (plus 5% VAT) from XYZ LLC and the Tax Invoice for the same was issued on 5th April 2019. ABC LLC made the payment to XYZ LLC for the purchase on 6th April 2019.
Assume that ABC LLC has its tax period starting from 1st January 2019 to 31st March 2019 and quarterly thereafter. During the VAT return filing in the month of April (for the period Jan-March), the accountant of the ABC LLC found the above-mentioned invoice.
Will ABC LLC be reclaiming VAT on expenses in the UAE during the tax period 1st January 2019 to 31st March 2019 or in the period 1st April 2019 to 30th June 2019?
Let us identify the applicable provisions of the Federal Decree-Law related to reclaiming VAT on expenses in the UAE and understand the VAT Compliance in detail.
Applicable Provisions of the Law
Who can claim input tax?
A taxable person who has registered for VAT are entitled to recover the tax that is incurred on the purchase of goods and services which are used for making taxable supplies.
Reference of the Law
- As per Article 55(1) of Federal Decree-law No. (8) the Recoverable Input Tax may be deducted through the Tax Return relating to the first Tax Period in which the following conditions have been satisfied:
- The Taxable Person receives and keeps the Tax Invoice as per the provisions of this Decree-Law, provided that the Tax Invoice includes the details of the supply related to such Input Tax, or keeps any other document pursuant to Clause (3) of Article (65) of this Decree-Law in relation to the Supply or Import on which Input Tax was paid.
- The Taxable Person pays the Consideration for the Supply or any part thereof, as specified in the Executive Regulation of this Decree-Law.
- If the Taxable Person entitled to recover the Input Tax fails to do so during the Tax Period in which the conditions stated in Clause (1) of this Article have been satisfied, he may include the Recoverable Tax in the Tax Return for the subsequent Tax Period.
Date of supply provisions and time period to issue Tax Invoice
As per the provisions of Article 25 of the Federal Decree-Law, it specifies the date of supply on which tax shall be calculated, which shall be earliest of any of the following:
- The date on which Goods were transferred if such transfer was under the supervision of the supplier.
- The date on which the Recipient of Goods took possession of the Goods, if the transfer was not supervised by the supplier.
- The date on which the provision of Services was completed.
- The date of receipt of payment or the date on which the Tax Invoice was issued.
As per Article (67) Date of Issuance of Tax Invoice, a Registrant shall issue a tax invoice within 14 days of the date of supply as stated in Article 25 of Decree-Law.
Our Findings on the applicability of the provisions of the UAE VAT Law in the above-mentioned Case Study:
As mentioned above in Article 55(1), it is understood that reclaiming VAT on expenses in the UAE can be claimed by the customer in the first tax period in which he receives the tax invoice.
In the current scenario, the invoice is issued and assumed to be delivered to ABC LLC on 5th April 2019 and so they are eligible to claim the input tax in the first tax period i.e. 1st April 2019 to 30th June 2019, that is in the period 1st April to 30th June 2019 (filing on July). If they failed to claim the input in this quarter, then they can recover the input in the subsequent quarter i.e. 1st July 2019 to 30th September 2019(Filing on October).
Secondly, as per article 55(1)b, the taxable person must pay the consideration in full or in part and in our scenario, ABC LLC has paid the consideration for the supply in full that means both the conditions for the recoverability of input tax are satisfied.
As per Article 67 of the Federal Decree-Law, it is the responsibility of the supplier to issue and deliver a proper tax invoice within 14 days from the date of supply. In this scenario, we can clearly understand that the supplier issued and delivered the tax invoice within14 days from the date of supply.
Though the tax invoice is prepared on a later date, the Date of Supply of Goods or Services will still remain the same date of supply as per Article 25.
Some of the suppliers are of the opinion that tax invoice can be issued after 14 days from the date of supply of goods or completion of services. If the tax invoice is issued upon a later month it will result in non -compliance of the VAT Law. Merely preparing the tax invoice on another date will not shift the date of supply from the actual date to invoice date.
Conclusion of the case study on reclaiming VAT on expenses in the UAE:
Considering the transaction explained and the provisions of the VAT Law discussed above, ABC LLC can claim the VAT paid on the goods purchased from XYZ LLC in the tax period 1st April 2019 to 30th June 2019 as the tax invoice is dated within the tax period (i.e. 5th April 2019) and also satisfies other eligibility to recover the VAT input as per the VAT Law.
Also, for XYZ LLC had the responsibility to issue and deliver the tax invoice within 14 days from the date of supply as stated in Article 25 of the Decree-Law. In the case explained XYZ LLC has issued the tax invoice on 5th April 2019, which is within 14 days from the date of supply i.e. 28th March 2019. Hence the issuance of a tax invoice is complying the provisions of VAT Law.
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