Input Tax (Input VAT)
VAT paid on business purchases and expenses that can be recovered from the Federal Tax Authority through your VAT return.
What is Input Tax?
Input Tax, also known as Input VAT, is the Value Added Tax that a registered business pays when purchasing goods or services from suppliers. This VAT can generally be recovered (reclaimed) from the Federal Tax Authority (FTA) by deducting it from the Output Tax (VAT collected on sales) when filing your VAT return.
How Input Tax Recovery Works
When you file your VAT return (Form 201), you calculate the VAT payable to the FTA as follows:
If Output Tax exceeds Input Tax, you pay the difference to the FTA
If Input Tax exceeds Output Tax, you can claim a refund
Conditions for Input Tax Recovery
To recover Input Tax, you must meet the following conditions:
- Business Purpose: The purchase must be for business purposes, not personal use
- Valid Tax Invoice: You must hold a valid tax invoice from the supplier with their TRN and VAT amount clearly shown
- VAT Registration: Your business must be registered for VAT with the FTA
- Taxable Supplies: The purchase must relate to making taxable supplies (standard or zero-rated, not exempt)
Non-Recoverable Input Tax
Input Tax cannot be recovered in the following situations:
- Exempt Supplies: Input VAT related to making exempt supplies (e.g., financial services, residential property)
- Personal Use: VAT on goods or services used for non-business or personal purposes
- Entertainment: VAT on business entertainment expenses (unless specific exceptions apply)
- Passenger Vehicles: VAT on purchase or lease of passenger vehicles (with certain exceptions)
- Invalid Invoices: Purchases without proper tax invoices or from non-registered suppliers
Partial Input Tax Recovery
If your business makes both taxable and exempt supplies, you can only recover Input Tax proportional to your taxable supplies. This requires calculating an attribution percentage:
Example: If your business has AED 800,000 in taxable supplies and AED 200,000 in exempt supplies (total AED 1,000,000), your attribution percentage is 80%. You can recover 80% of Input Tax on general overhead expenses.
Timing of Input Tax Recovery
Input Tax can generally be recovered in the tax period in which:
- 1 The earlier of when you receive the tax invoice or when payment is made
- 2 For imported goods, when you pay import VAT to customs
- 3 For reverse charge supplies, when you account for the VAT in your VAT return
Common Examples of Input Tax
Recoverable Input Tax
- Office supplies and equipment
- Inventory and raw materials
- Professional services
- Rent for business premises
- Marketing and advertising
- Business travel expenses
Non-Recoverable Input Tax
- Personal expenses
- Client entertainment
- Most passenger vehicles
- Expenses for exempt supplies
- Purchases without tax invoices
Related Terms
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