Time-frame for recovering Input Tax
Article 55 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”) prescribes the time-period within which input tax should be recovered by a taxable person.
This Public Clarification clarifies the FTA’s position relating to the interpretation of Article 55 of the VAT Law and discusses the time-period within which the input tax must be recovered. This Public Clarification also discusses the recourse available to taxable persons in the instance where input tax is not recovered within the prescribed time-period.
Summary
Input tax must be recovered in the first tax period in which two conditions are satisfied:
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the tax invoice is received; and
-
an intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed.
Upon receipt of a tax invoice, a taxable person can recover input tax only when an intention to make the payment within a prescribed period is formed. Therefore, if the intention to make the payment is formed in a tax period which is later than the tax period in which the tax invoice is received, the input tax can be recovered only in the later tax period.
Article 55(1) of the VAT Law prescribes that input tax must be recovered in the first tax period in which the following conditions are satisfied:
1. The taxable person receives the tax invoice;
and,
2. The taxable person pays the consideration for the supply or any part thereof. Article 54(2) of Cabinet Decision No. (52) of 2017 on the Executive Regulation of the Federal Decree- Law No. 8 of 2017 on Value Added Tax (“VAT Executive Regulations”) refers to Article 55(1) of the VAT Law and provides that a taxable person is treated as having made a payment of consideration of a supply to the extent that the person intends to make the payment before the expiration of six months after the agreed date of payment for the supply.
A concurrent reading of Article 55(1) of the VAT Law and Article 54 of the VAT Executive Regulations provides that input tax must be recovered in the first tax period in which the two
conditions are satisfied
-
the tax invoice is received; and
-
there is an intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment.
A taxable person may receive a tax invoice but may not have an intention to make the payment until the internal approval process for the invoice is completed. In such cases, the conditions of Article 55(1) of the VAT Law are not satisfied as the intention to make the payment before the expiration of six months after the agreed date of payment is not formed.
A taxable person may receive a tax invoice but may not have an intention to make the payment until the internal approval process for the invoice is completed. In such cases, the conditions of Article 55(1) of the VAT Law are not satisfied as the intention to make the payment before the expiration of six months after the agreed date of payment is not formed
The FTA considers that the conditions of Article 55(1) of the VAT Law will only be met when the taxable person completes the internal approval process and forms an intention to make the payment within the prescribed period.
In view of the above, before recovering input tax, a taxable person needs to substantiate that in addition to receiving a tax invoice, he has also satisfied the condition of forming an intention to make the payment within the prescribed period.
For the avoidance of doubt, please note that where a tax invoice is received in one tax period and the intention to make the payment is formed in a later tax period, the input tax can only be recovered in such later tax period.
It may be noted that where the input tax is not recovered in the tax period in which both the conditions are satisfied, the taxable person can recover the input tax in the immediate next tax period.
If input tax is not recovered in the first two tax periods, a taxable person is required to submit a voluntary disclosure. The voluntary disclosure should amend the input tax reported in the VAT return of one of the two tax periods.
Non-payment of consideration before the expiration of six months after the agreed date of payment
Where a taxable person fails to make the payment of consideration before the expiration of six months after the agreed date of payment, the taxable person should reduce the input tax in the VAT Return of the tax period following the expiry of the six-month period. However, once the payment is made, the taxable person will again be entitled to recover the input tax.
This article is based on the public clarification issued by the FTA. More details check FTA website
To read our previous article related to input tax recovery ; check the blog ink :
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