An input tax is the amount paid by any personal on every purchases made or inward supplies. The major feature of VAT in UAE is recovery of tax paid on inputs where a person can reduce the amount of input tax likely for recovery from tax payable amount & pay the balance amount as tax.
It’s a kind of guarantee that tax is only paid to value added at each stage of every supply chain. This eligible amount of recovery in input tax also plays important role in operating expenses and the cash flow under VAT. As per leading vat consultancy in Dubai, formula for input tax recovery is:
Tax payable = Output tax payable – Input tax recoverable
Any registered business can recover the VAT paid in purchasing of goods & services under certain applicable conditions:
- Only Taxable Supplies Are Eligible: Only taxable supplies (i.e. supplies made at 5% taxation) can be claimed for inputs not exempt supplies.
- Tax Invoice Is Mandatory: The claim of input tax recovery can be done only if recipient ensures that tax Invoice pertaining to supply is present in the records.
- Payment of Consideration: The recipient should be ready to pay or agree for payment of consideration for supplies made that too within 6 months after the agreed date of payments.
VAT paid on most business expenses can be recovered as input tax, but taxpayers must know to correctly distinguish between recoverable and irrecoverable input tax to claim and pay right amount of tax. Any kind of errors can lead to tax penalties.