Article 55 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax lays out the period in which the taxed entity expects to be recovering the input tax.
This Public Clarification clarifies the FTA’s status concerning the application of Article 55 of the Law on VAT and addresses the input tax recovery timing. This Public Clarification further addresses the recourse applicable to taxed individuals when the tax on inputs is not collected under the specified limits.
One should recover input tax in the first tax year under which two requirements should be met:
- The tax invoice shall be received;
- The aim is to allow payment of the supply consideration until the end of six months after the payment’s negotiated date.
After receiving a tax invoice, a taxable individual can recover an input tax only if the plan to make the payment is made within the prescribed time.
Therefore, if the plan to make the payment is expressed in a tax period (i.e., after the tax period in which the tax invoice is charged), the input tax may be received in the later tax period.
In the light of the above, before recovering input tax, a taxable person must show that, in addition to obtaining a tax invoice, he has already fulfilled the condition of the intention to make the payment within the prescribed time.
To prevent questions, please note that if a tax invoice is paid in one tax period and the intention to make the payment is made in a later tax period, the input tax will only be collected in that last tax period.
- If the input tax is not recovered in the tax year in which the two conditions are fulfilled, the taxable individual must recover the input tax in the next tax year.
- If input tax is not collected within the first two tax years, the taxable individual must make a voluntary disclosure. Voluntary disclosure could adjust the input tax recorded in the VAT return for one of the two tax years.
- Non-payment of consideration due to the expiration of six months after the negotiated date of payment
- When the taxable person fails to make payment of the consideration before the expiration of six months after the negotiated date of payment, the taxable person should decrease the input tax in the VAT refund of the tax year after the expiry of the six months. However, after the payment has been made, the taxed individual will again be entitled to reclaim the input tax.