Understanding Reclaimable VAT Expenses
Every business in the UAE must manage its VAT expenses with care. You must know which VAT expenses are reclaimable. This knowledge helps a business control its cash flow and working capital. A business can use proper VAT routines for a smooth process. You should always put strong internal controls in place when you set up your VAT procedures. These controls will help your team report VAT accurately every tax period.
What Are the Conditions for Reclaiming VAT Expenses?
UAE VAT law sets clear rules for reclaimable VAT expenses. A company must meet certain conditions before it can claim input VAT. The main rules are:
- You must incur VAT only for making taxable supplies.
- VAT for exempt supplies can’t be recovered.
- You must keep a valid tax invoice for every VAT expense you want to reclaim.
- The invoice must show all required details, including the VAT amount.
- You must pay or plan to pay the invoice within six months from the date agreed with your vendor.
If your VAT expense meets these rules, you can claim it in your VAT return. Businesses must follow these steps every time to avoid problems later.
How Can You Identify Reclaimable VAT Expenses from Admin Expenses?
Most companies pay VAT on admin expenses that serve many purposes. Some of these expenses help with taxable supplies, some with exempt supplies, and some with non-business needs. Only the VAT connected to taxable supplies is reclaimable.
You must split VAT for admin expenses using an apportionment formula. Here’s how you do it:
- Calculate the total taxable supplies.
- Calculate the total supplies (taxable + exempt + non-business).
- Divide the taxable supplies by the total supplies to get a percentage.
- Multiply the admin VAT by this percentage to get your reclaimable amount.
When taxable supplies rise or fall, your reclaimable VAT also changes.
What’s the Process of Reclaiming VAT Expenses in UAE?
You must report reclaimable VAT in your VAT return each tax period. The FTA gives special rows for input VAT on the VAT return form. When you file your return:
- List all reclaimable VAT expenses in the right row.
- Compare your reclaimable input VAT with your output VAT.
- If your input VAT is higher than output VAT, you can request a VAT refund.
- If your input VAT is less than output VAT, you must pay the difference as VAT.
A business should keep all tax invoices and related documents to show the FTA when needed.
Is There a Time Limit for Reclaiming VAT Expenses?
Yes, the UAE VAT law sets a clear timeline for reclaiming VAT expenses. You must reclaim eligible VAT expenses within the first two tax periods after the expense becomes eligible. For example, if you incur an expense in April, you can reclaim it in your April or May VAT return. If you miss this window, you may lose the right to reclaim that VAT.
You must set up good internal controls over your accounts payable department. This practice ensures you don’t miss reclaiming VAT expenses on time.
Steps to Improve VAT Reclaim Process
If you want to make VAT reclaim easy, you should:
- Train your finance team about VAT reclaim rules.
- Set up strong internal controls for accounts payable.
- Review all incoming invoices for VAT accuracy.
- Keep digital records of every tax invoice.
- Use accounting software that can split VAT by supply type.
With these steps, your business will avoid mistakes and get the full benefit of reclaimable VAT.
What Can Mubarak Al Ketbi (MAK) Auditing Help You With?
Let’s put our heads together—because two heads are better than one! Mubarak Al Ketbi (MAK) Auditing will help you:
- Check every VAT expense for reclaim eligibility.
- Set up your VAT routines for smooth reporting.
- Split VAT on admin costs using the right method.
- Keep you updated with UAE VAT law changes.
- Prepare your team for FTA reviews or audits.
For More Information
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
