UAE Updates VAT Guide: New Rules on Input Tax Apportionment and Recovery Percentage

UAE Federal Tax Authority Updates Input Tax Apportionment Guide: Key Changes and Compliance Insights

Specified Recovery Percentage (SRP): The updated guide allows businesses to apply for a specified recovery percentage based on their previous year’s recovery rate, easing the burden of recalculating recovery ratios. The application process requires VAT registration for at least 12 months and includes a detailed submission to the FTA, with approvals valid for four years.
Clarifications on Input Tax Recovery: The guide clarifies that only recoverable input tax should be included in the recovery ratio calculation, explicitly excluding blocked input tax as defined in the Executive Regulations. This distinction simplifies the computation process for businesses, ensuring they have a clearer understanding of their eligible input tax recovery.
Compliance Requirements and Notifications: Businesses must notify the FTA of any significant deviations (over 10%) from their initially submitted recovery rate within 20 business days. The guide emphasizes the importance of accurate record-keeping and timely responses to FTA inquiries to maintain compliance with evolving VAT regulations and ensure efficient input tax recovery.

Source BDO

UAE Federal Tax Authority Releases Updated Guidance on Input Tax Apportionment

Introduction of Specified Recovery Percentage (SRP): The Federal Tax Authority (FTA) has clarified the Specified Recovery Percentage (SRP) mechanism, allowing businesses to apply a fixed recovery percentage based on the previous year’s recovery rate, thereby simplifying the input tax recovery process for taxable persons making both taxable and exempt supplies.
Approval Process and Validity: The FTA’s approval for the SRP is valid for four years, with a mandatory two-year lock-in period before any changes can be requested. The application process includes submitting annual adjustment calculations and may take up to 60 business days for sectoral methods, with strict timelines for responses to FTA inquiries.
Notifications and Special Cases: Registrants must notify the FTA of any significant changes (over 10%) in their recovery rate within 20 business days, providing detailed documentation of variances. The guide also addresses special cases for tax year-end determinations, ensuring businesses are aware of specific conditions affecting their tax status.

The FTA published an updated VAT guide on input tax apportionment.
It includes guidance on the specified recovery percentage introduced in November 2024.
The specified recovery percentage allows using a previous year’s input VAT recovery rate for the next tax year with FTA approval.
This eliminates the need to calculate a VAT recovery rate for each periodic return.
The guide also has updated timelines and general amendments.