Understanding Input Tax Apportionment: New UAE VAT Executive Regulations

Recent changes in the UAE VAT Executive Regulations emphasize the need for fairness and accuracy in input tax apportionment for businesses making both taxable and exempt supplies.

Here’s what you need to know:

What is Input Tax Apportionment?

When VAT on purchases (input tax) relates to both taxable and exempt supplies, businesses can’t recover all the VAT. Apportionment ensures only the recoverable portion is claimed.

1. Standard Method

The standard apportionment formula remains unchanged:

• Recoverable VAT = Taxable Recoverable Input Tax ÷ Recoverable + Non Recoverable input Tax = % (rounded to the nearest whole number

2. Updates on Special Methods:

If the standard method doesn’t yield fair results, businesses can now apply for alternative methods with clearer guidance from the Federal Tax Authority (FTA):

• Outputs-Based: Allocates VAT based on the revenue contribution of taxable and exempt supplies.
• Transaction Count: Divides VAT by the number of taxable and exempt transactions. The FTA requires detailed justification and supporting calculations for special method applications to apply this.

3. Annual Adjustments:

As the latest Executive Regulations emphasise, businesses must recalibrate their apportionment annually to reflect actual supply patterns to maintain fairness.

4. Enhanced Tools for Compliance

As discussed in the context of the FAF requirements, The FTA recommends using compliant accounting software to automate calculations and streamline reporting.

Takeaway

Understanding and applying the latest input tax apportionment rules can optimize VAT recovery while ensuring compliance. Stay updated, maintain detailed records, and use the right tools for accurate reporting.

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