What is Claimable VAT?

UAE is popularly known as the Gateway to the Middle -East and Northern African regions. The UAE and the Emirati governments’ amiable business policies have resulted in UAE becoming the throttling business and investment hub. The UAE Government has introduced new VAT taxation, which will be an additional source of revenue for the infrastructure development to continue its growth and investment-friendly destination. There are several provisions under the UAE VAT law, of which Claimable VAT is one such provision.

VAT in the UAE

Value Added Tax (VAT) is generally a type of consumption tax on goods that will be added at each stage of value addition in the supply chain, starting from production, distribution to the point of the final sale. The total tax amount is calculated only for the value addition, i.e., the cost of the product minus the costs of materials used, already taxed at the point of purchase. Thus, VAT is estimated and collected at each stage which is different to a sales tax, charged to the consumer at the very end stage of the supply chain network.

UAE, along with the other members of the GCC group, introduced the VAT in 2017. The VAT has come into effect from 1st January 2018 in the UAE. The VAT rate currently is fixed at 5% for most of the goods and services offered in the country. There are certain goods with VAT taxed at a 0% rate and goods with complete VAT exemptions.

Claimable VAT

Under the UAE VAT law provisions, the suppliers of goods and services can reclaim the input VAT on the goods and services sold or qualifying activities. The input VAT is referred to as the tax paid by the supplier on the raw materials and related services used to make the product by the supplier.

Suppliers can reclaim the tax amount charged on goods and services used only for taxable supplies. The company must have valid VAT invoices or relevant Customs receipts as supporting documents at the time of the claim. All transaction records are a must to support tax claims.

A taxpayer must make a claim to reclaim the input VAT. The taxpayer is not entitled to reclaim tax used for producing VAT exempt supplies or any non-business activities. In cases where the input costs relate to taxable supplies and other non-claimable activities, the supplier can reclaim only the VAT amount used for taxable supplies. The taxpayer can apply for a VAT refund only after Filing VAT Returns.

After submitting the request to reclaim VAT, the Federal Tax Authority(FTA) will review and process the claim application within 20 business days of the application submission date. The taxpayer is duly notified of the FTA’s decision to accept or reject the VAT claim. In certain exceptional cases, if the due process exceeds the standard timeline of 20 days from the date of submission, the FTA will accordingly notify the taxpayer regarding the extension.