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What is input tax apportionment?

The recovery of input tax will be permitted where acquired goods and services are used, or intended to be used, in making any of the following:

  • taxable supplies;
  • supplies that are made outside the UAE which would have been considered taxable had they been made in the UAE; and
  • supplies of financial services which would have been treated as exempt if made in the UAE, but which are provided to a person who is outside the UAE and are treated as taking place outside the UAE.

Where any acquisition by a taxable person relates solely to the supplies indicated above, the person will, in principle, be able to recover the input tax incurred in full. Where an acquisition is directly linked solely to non-business or exempt supplies made by the person, the person will not be able to recover any of the input tax incurred.

Input tax which is incurred in respect of goods or services which are used partly for making supplies that allow for VAT recovery and partly for making supplies for which VAT is not recoverable is known as “residual input tax”, and it must be apportioned between those supplies. Recovery will be restricted to the proportion relating to supplies that allow for VAT recovery.

As pe the new guide issued by the FTA in December 2018, specified special method for apportionment of input tax recoverable are to be used by the taxable person.

Read: Methods for input tax apportionment

Annual adjustment to input tax recovered

If there is a difference of more than AED 250,000 in any tax year between the recoverable input tax as calculated in accordance with the standard apportionment method and the input tax which would have been recoverable if the calculation was made on the basis of the special apportionment method, then the taxable person should make an adjustment to the input tax in respect of the difference.

Calculation of annual input tax apportionment adjustment to be declared in the VAT return

Annual adjustment = Input tax recovered as per the standard method (–) Input tax to be recovered as per special apportionment method

Example:

Calculation of input tax adjustment to be recorded in VAT return

How to record difference of adjustment in VAT return 201?

Box 9 of VAT return form should include any input tax apportionment annual adjustments. This adjustment is due in the first tax period following the Tax Year end. Please note that this will only be required after the 1st year of VAT, i.e. from 1 January 2019 onwards. No adjustment will be made in the return for the period ending December 2018.


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The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn't constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn't accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information's provided herein above.

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