The Federal Tax Authority of the UAE ("FTA") has issued a public clarification of VATP017, "Time Limitations on Filing Input Tax Credits", which sets out the FTA's position on when input tax credits may be claimed against VAT and the recourse available to taxpayers who fail to file an input tax return within the prescribed time period. VATP017 clarifies the FTA's position on when input tax can be credited through VAT and the recourse available to taxpayers who fail to file an input tax return within the prescribed time limit.
This public statement clarifies FTA's position on the interpretation of section 55 of the Value Added Tax Act and discusses the time limit within which input tax must be credited.
Disclaimer Summary
Input tax must be credited in the first filing period in which the following two conditions are met:
1. The taxpayer receives the receipt invoice;
2. The taxpayer intends to complete the payment within six months after the agreed payment date.
Upon receipt of a tax invoice, the taxpayer can only deduct the input tax if there is an intention to pay within the prescribed period. Therefore, if payment is made later than the date of receipt of the invoice, the input tax can only be deducted in subsequent tax periods.
A review of Section 55(1) of the previously enacted VAT Act provides that the input tax must be set off in the first filing period in which the following conditions are fulfilled
1. The taxpayer receives a tax invoice;
2. The taxpayer completes the payment.
Interpretation of Statements
The taxpayer of the VAT Act receives the invoice but may not intend to pay it until the internal approval process of the invoice has been completed. In such a case, the conditions of Article 55 (1) of the VAT Act cannot be fulfilled due to failure to make payment before the expiry of six months after the agreed payment date.
The FTA is of the opinion that the conditions of Article 55, paragraph 1 of the VAT Act can only be satisfied if the taxpayer completes the internal approval procedure and intends to make the payment within the stipulated period.
In view of the above, the taxpayer, before taking credit for input tax, needs to prove that, in addition to receiving the tax invoice, he has fulfilled the condition of forming a payment to be made within a pre-determined period of time.
take note of
1. If a tax invoice is received in one filing period and an intention to pay is formed in a subsequent filing period, the input tax can only be deducted in the subsequent filing period.
2. If the input tax is not deducted in the period when both conditions are met, the taxpayer needs to deduct it immediately in the next filing period.
3. If no input tax is deducted in two consecutive filing periods, the taxpayer is required to complete a voluntary disclosure to the IRD. Providing the IRD with detailed filing support materials and describing the reasons for not filing on time, the taxpayer needs to pass the IRD's verification and approval before completing the revision of the previous quarterly returns.
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