The UAE Federal Tax Authority (FTA) has issued a new public clarification VATP017 on the Article 55 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”). This clarification clarifies the FTA’s stand on interpretation of Article 55 of the VAT Law and discusses the time period within which the input tax must be recovered. It also discussed about the resources available to the taxable persons in cases where input tax is not recovered in the prescribed time-period.
Accordingly, 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. As per FTA the conditions of Article 55(1) of the VAT Law will only be met once the internal approval process is completed by the taxable person and he intends to make the payment within the prescribed period. If a tax invoice is received in one tax period and If the input tax is not recovered in the tax period in which both the conditions are satisfied, then it can be recovered in the immediate next tax period. In cases where input tax is not recovered in the first two tax periods, a taxable person is required to submit a voluntary disclosure. This voluntary disclosure should amend the input tax reported in the VAT return of one of the two tax periods.
In case 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 (value added tax) return of the tax period following the expiry of the six-month period. However, once the payment is made, the taxable person can recover the input tax.