Are you including VAT costs on your purchases to ensure VAT recovery?
Understanding partial exemption rules can help you optimize VAT recovery.
Due each VAT reporting period, the partial exemption rule allows companies to recover part of the Input tax credit they bear on their purchases.
Mistakes in VAT calculations can lead to inaccurate tax credits, resulting in penalties if over-claimed or higher irrecoverable taxes if under-claimed, affecting business profitability.
To apply the partial exemption rule:
– Identify VAT on purchases directly linked with taxable or exempt supplies
– Allocate VAT into three buckets: Green (fully recoverable), Red (not recoverable), and Yellow (partially recoverable)
– Calculate pro-rata % using a standard method or a special method approved by tax authority
– Claim total Input VAT provisionally and adjust yearly for seasonal supply and variations
Source Vineet Sampat
