Insights on Updated VAT Guide on Input Tax Apportionment

The UAE Federal Tax Authority (FTA) published a VAT Guide on March 2023 detailing the special methods relevant to Input Tax Apportionment. The new VAT guide replaces the previous guide and introduces several updates in accordance with the UAE Federal Decree-Law No. 8 of 2017 on VAT and its recent amendments. The new guide offers assistance for taxable entities in understanding and applying the UAE VAT legislation with regard to input tax apportionment and special methods for input tax apportionment.

Vat consultants in Dubai can provide further assistance with regard to input tax apportionment. The following article is a summary of the key updates to the Input Tax Apportionment Guide. Read ahead to gain further insights on the updated VAT guide on input tax apportionment:

Extended Scope – Outputs Based Special Apportionment Method

The outputs-based method was earlier available to Insurance companies (Islamic and non-Islamic), Financial institutions (Islamic and non-Islamic) and providers of local passenger transportation services. However, the new guidance has added two more sectors such as educational institutions and establishments like art galleries, cultural entities, and similar establishments that conduct non-business activities. Tax agents in Dubai can clear your doubts about the sectors that can use the outputs-based method.

Extended Scope -Sectoral Special Apportionment Method

The sectoral method is used by large complex businesses that conduct different business activities through different divisions that are independent of each other from an operational and accounting perspective. Previously, the sectoral method was to be used only for large, complex companies and establishments with different divisions, such as banks retail, investment and real estate divisions, and insurance companies providing both life and non-life insurance. In the new guidance, the scope of the sectoral method has been extended to real estate companies with separate divisions for commercial and residential properties.

FTA Review Timelines

The FTA would take up to 40 business days to respond to the initial input tax apportionment request for a non-sectoral method. For input tax apportionment requests using a sectoral method, the authority will take 60 days to respond. The FTA may request additional information if it thinks such information is necessary. The FTA will take an additional 40 or 60 business days to respond to the updated request for a special input tax apportionment method.

The Effective Date of Application of the Approved Special Method

If the FTA approves the use of a special input tax apportionment method, the entities can use that method from the first tax period following the date of approval. Talk to the best VAT consultants in Dubai for further information.

Requirements for the Re-Application for a Special Apportionment Method

The validity of any special method approved by the FTA will be 2 to 4 years (depending on the method chosen). If the registrant desires to use the special method upon the expiry of the validity, it needs to submit a new application to the FTA at least 40 business days before the expiry of the most recently approved special method.

If the taxable person submitted a request to continue using the previously approved special method before its expiry date, the registrant can continue using the previously approved method up to the end of the tax period during which a new decision on the request is issued by the FTA. However, any major changes in the business should be highlighted to the FTA in the new request.

The new application should include the same type of information and calculations as the original application, for 12 months preceding the new application. The new application should also contain a comparative overview of the recovery rates and sectors provided in the original application and the new apportionment calculation requested, with an explanation of any major fluctuation in the recovery rates.

Consult with the Best Tax Agents in Dubai, UAE

Taxable entities can use the new FTA Guide while selecting a special method for input tax apportionment. However, you can consult with the best VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) before selecting the special method. JCA is one of the most experienced tax consultants in Dubai with more than 21 years of experience in the industry. Our FTA-approved tax agents in Dubai can help you comply with requirements such as VAT registration, return filing, record keeping, financial reporting, VAT refunds and VAT health check services. Failing to ensure VAT compliance in the UAE is an offence that attracts hefty penalties, and therefore consult with JCA today to be on the right side of the law.