Is VAT On All Purchases Recoverable?

VAT is designed as a consumption tax to be borne by the final consumer. Therefore as a VAT registered business, you are eligible for VAT recovery on your purchases. However, this does not mean you are able to claim VAT on every purchase.

It is only recoverable if it satisfies the following conditions:

1. The business must be a taxable person and have a valid TRN number issued by the FTA (the end consumer cannot claim any input tax refund).
2. VAT should have been charged correctly (i.e. incorrectly charged VAT has no VAT recovery).
   3. The business must hold documentation showing the VAT charged (e.g. valid tax invoice complying to the Executive Regulations).
   4. The goods or services acquired are used or intended to be used for making taxable supplies.
   5. VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.
   6. Acquisitions deemed to have been acquired for purposes other than the taxable person’s economic activities should be blocked from input VAT recovery. Expenses incurred for persons are excluded or subject to exempt supplies.

These conditions must be met to claim VAT refunds or you may run into penalties in the event of an FTA audit. In reality, care should be taken to ensure that only purchases attributable to the business and adhering to the policies and rules set out in the Executive Regulations should be claimed in your VAT returns.

There are many considerations to take in for businesses. These include checking of compliant invoices, calculating the right input VAT values, adjusting for changes under the items such as the capital assets scheme to the VAT apportioning for mixed use purchases.

Ideally your account payable team require an understanding of the specific rules and internal process for clarifications. This implies regular training and procedures in your business to manage the end to end process.

In addition, the FTA can request and check any claim 5 years from your submission. Therefore your business will also need to assess the most efficient means to archive and trace transactions to substantiate your VAT claim.

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