UAE Vat Guide

What:

The Federal Tax Authority published an updated VAT Guide on Input Tax Apportionment (VATGIT1) last 22 March 2023.

Purpose:

The updated guide provides further clarity and better examples for all input tax apportionment method (standard and special).

Summary of Input Tax Apportionment Method:

1. Standard Input VAT Apportionment Method

• Common Error – Including blocked Input Tax in computation.

2. Special Input Tax Apportionment Methods:

a.    Outputs-based method:

• Applicability – Insurance Companies, Financial Institutions, Local passenger transport Services, educational institutions, establishments conducting non-business activities.
• Common Error – Including expenses subject to reverse charge.

b.    Transaction-count method:

• Applicability – Financial Institutions such as Banks – Islamic and non-Islamic.
• Common Error – Including input transactions (including the reverse charge expenses) in the calculation.

c.    Floorspace method:

• Applicability – Those supplying commercial and residential properties.
• Common Error – Including communal areas such as lobbies and lifts in computation. 

d.    Sectoral method:

• This is a mixture of the applicable special methods per sector.
• Applicability – Large, complex companies with different divisions
• Common Error – (1) Not stating the methodology used; (2) Not providing breakdown of total headcount; (3) detailed information on activity per sector; (4) rationale for using each method.

How can Crowe help?

1. Support in determining which method is most appropriate for the Company to reflect the actual use of their common input tax.
2. Assist in annual wash-up computation.