Navigating the UAE’s Updated VAT Guide on Input Tax Apportionment: Key Insights for Businesses

Introduction:

The United Arab Emirates (UAE) Federal Tax Authority (FTA) recently released an updated VAT Guide on Input Tax Apportionment in March 2023. This comprehensive guide replaces the previous version and comes with several important updates, aligning it with the UAE Federal Decree-Law No. 8 of 2017 on VAT and its recent amendments. The purpose of this guide is to assist taxable entities in understanding and implementing the UAE VAT legislation concerning input tax apportionment and special methods for apportionment.

In this article, we will explore the key updates from the Input Tax Apportionment Guide, shedding light on the extended scope of special apportionment methods and the FTA’s review timelines. VAT consultants in Dubai like Trustworth can provide further support in navigating through these changes and ensuring full compliance with VAT regulations.

Extended Scope – Outputs Based Special Apportionment Method:

The updated guide has expanded the scope of the outputs-based method, which was previously available to specific sectors such as insurance companies, financial institutions, and providers of local passenger transportation services. Now, educational institutions and establishments, including art galleries, cultural entities, and similar establishments conducting non-business activities, can also avail of this method.

Extended Scope – Sectoral Special Apportionment Method:

The sectoral method is commonly used by large complex businesses that operate various divisions independently from an operational and accounting perspective. In the past, this method was applicable only to certain large, complex companies and establishments, such as banks with retail, investment, and real estate divisions, as well as insurance companies offering both life and non-life insurance. The updated guide has broadened the scope to include real estate companies with separate divisions for commercial and residential properties.

FTA Review Timelines:

The FTA has set specific timelines for reviewing input tax apportionment requests. For non-sectoral methods, the FTA will respond within 40 business days of receiving the initial request. On the other hand, requests using the sectoral method will be addressed within 60 business days. Additional information may be requested by the FTA if deemed necessary. In case of an updated request for a special input tax apportionment method, the FTA will take an additional 40 or 60 business days to respond.

Effective Date of Application of the Approved Special Method:

Upon approval of a special input tax apportionment method by the FTA, entities can begin using the method from the first tax period following the approval date.

Requirements for Re-Application:

The FTA’s approved special methods are valid for a period of 2 to 4 years, depending on the chosen method. To continue using the special method upon its expiry, a new application must be submitted to the FTA at least 40 business days before the expiration date of the most recent approval.

Conclusion:

Staying updated with the changes in the UAE VAT regulations is crucial for businesses to ensure compliance with the law. With the new VAT Guide on Input Tax Apportionment, businesses can benefit from a clearer understanding of special apportionment methods and their application. Seeking assistance from experienced VAT consultants in Dubai, such as Trustworth, can provide valuable insights and guidance in navigating the complexities of VAT compliance. As the UAE continues to refine its VAT framework, businesses must remain vigilant in adhering to the latest guidelines to avoid penalties and maintain smooth operations.