United Arab Emirates: Practical Update – Guide On Input Tax Apportionment And Public Clarification On Date Of Supply For Independent Directors Published By The FTA

Last Updated: 27 June 2019
Article by PWC  

1. FTA VAT Guide on Input Tax Apportionment: Special Methods (VATGIT 1)

FTA has published a new VAT Guide (VATGIT1) on input tax apportionment.

The main purpose of the Guide is to help VAT registrants submit their Input Tax Apportionment Request to the FTA in order to be able to use a special method of input tax apportionment.

The Guide provides the users with:

  • an overview of the general input tax apportionment rules and the special methods of input tax apportionment;
  • an overview of the process for applying for a special method of input tax apportionment; and
  • the information that taxable person will need to complete the form.

The Guide explains the steps for apportioning the residual input tax required by Articles 55(6)-(10) of the VAT Executive Regulations with special highlights on the performance of a wash-up calculation for the whole tax year. Specifically, if the difference 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 actual use of the goods or services is more than AED 250,000, the taxable person should make an adjustment to the input tax in respect of the difference.

The Guide proposes that one of the following special apportionment methods should be applied by taxable persons when calculating the input tax apportionment under "actual use":

  1. Output-based method: this method takes into account the value of taxable supplies as a portion of all supplies made by the business during the year. It is available for banking, insurance and local transport provider companies.
  2. Transaction count method: this method uses the volume of taxable transactions as a portion of total transactions made by the business during the year. It is available for banks operating in wholesale and investment trading activities.
  3. Floor space method: this method is used to apportion input tax based on floor space used for taxable activity as a portion of all available floor space. It is available for companies involved in real estate commercial and residential activities.
  4. Sectoral method: this method is for large and complex businesses where various businesses are conducted through discreet divisions of the same business. It allocates the residual input taxes between different sectors based on headcount or output.

Taxable persons may apply to FTA for approval of a special apportionment method other than the ones listed above, provided the conditions for the application of a special method are all met and the persons can demonstrate that they will be able to comply with all these conditions. Once the FTA approves the use of a special apportionment method, the taxable person will be required to consistently apply the approved method for at least 2 years.

The Guide can be found on the link below: https://www.tax.gov.ae/pdf/Input%20Tax%20Apportionment%20Guide%20EN%20December%202018.pdf

The Application Form for Input Tax Apportionment can be found on the link below: https://www.tax.gov.ae/pdf/Input%20Tax%20Apportionment%20Form_EN.pdf

2. FTA VAT Public Clarification on Date of Supply for Independent Directors (VATP009)

In December 2018, FTA has published a new Public Clarification on the date of supply for directorship services (VATP009). The Clarification has provided the guidance on how to determine the date of supply for the board fees paid to independent directors under two scenarios:

  • Where the board fees for the independent directors are not known at the outset and are determined only upon the conclusion of the Annual General Meeting, the date of supply would be triggered when such fees are known (provided no invoice was issued and no payment was received prior to such date).
  • In other cases, where the board fees are known at the outset, the date of supply would be determined as per Article 26 of VAT Law where there are periodic payments or consecutive invoices. However, where there are no periodic payments or consecutive invoices, the date of supply would be determined as per Article 25 of the VAT Law.

The Public Clarification can be found in the link:
https://www.tax.gov.ae/pdf/VATP009%20-%20Date%20of%20Supply%20of%20Director's%20Fees.pdf

December 2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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