All you need to know about Input Tax in the UAE - FAQs

What is input tax?

Tax paid by an individual or a business when receiving goods or services or while conducting an import.

Under what conditions can I recover the input tax?

Input tax paid for goods and services can be claimed if they are intended to be used for:

• providing taxable supplies
• selling goods and services that are taxable in the UAE outside the state
• making supplies that are exempted in the UAE outside the state  

Even if the supplies fulfill the conditions mentioned above, the input tax can be recovered only if you are a VAT registered, taxable person.

Can I recover input tax for goods acquired in another state and then moved into the UAE?

Yes, if goods were acquired by a registrant in another implementing state and then moved into the UAE, then the tax paid will be treated as recoverable tax.

Can I recover the input taxes paid for services or goods meant for private or non-business purposes?

No, input tax for goods and services meant to be used only for private or non-business purposes can’t be recovered.

Can input tax be recovered for zero-rated supplies?

Yes, input tax can be recovered for zero-rated supplies.

Can I recover input taxes for exempted supplies?

No, input tax cannot be recovered for tax exempt supplies as there is no tax paid.

Can I recover tax that I incurred for taxable goods or services before VAT registration?

Yes. After you have registered, you may recover any input tax you incurred before registration.

When can I recover the input tax I incurred before tax registration?

If you purchased taxable supplies before registering for VAT, you can recover the taxes levied for those supplies in the first tax period following your tax registration. 

For example, let us consider a simple case involving a retailer. Mr. Saahil owns a leather products shop in the UAE. He imported some leather goods in January 2018, then registered for VAT in March 2018, so he can recover his input tax on his first tax period.

What types of transactions may allow recovery before tax registration?

You can only recover pre-registration input tax for:

• Supplies made before tax registration
• Imports of goods prior to registration

What types of transactions are ineligible for pre-registration input tax recovery?

Input tax may not be recovered under any of these circumstances:

• If the receipt of goods and services is not meant for making taxable supplies 
• If the supply is a capital asset and its value depreciates before the tax registration
• If the supply was received five years or more before the date of registration
• If the supplier has moved the goods to another state or country prior to tax registration in that state

What are the business expenses for which I cannot claim input VAT?

There are three types of expenses which are not eligible for input VAT credit in the UAE.

• When a company’s motor vehicle is used for personal purposes
• Any entertainment expense
• Any expense related to a business employee 

What types of employee expense VAT are eligible for input tax credit?

VAT can be recovered for goods and services which need to be provided to your employees on a mandatory basis, or as part of a contractual agreement or documented policy. 

When you incur personal expenses on behalf of your employees and do not charge the employees for those expenses, the VAT paid will not be eligible for input tax credit.

What are the entertainment expenses for which VAT cannot be recovered?

VAT cannot be recovered for entertainment expenses such as accommodation, drinks, and food that are not provided during a business meeting; travel for pleasure or entertainment; or any show or event. In addition to the expenses mentioned above, the VAT paid on entertainment for owners, shareholder, officials, clients, customers or investors cannot be recovered. 

How does input VAT credit work for company motor vehicles in the UAE?

In the UAE, you can receive input credit when you purchase, lease, or rent a motor vehicle for business purposes. If the motor vehicle is used for personal purposes, you will be unable to recover the tax paid.