Can We Claim VAT Paid on Expenses Before VAT Registration?

In UAE, the VAT registration is needed just for two forms of businesses. foremost for those businesses whose transaction value exceeds AED 375,000 within the previous twelve months or expected to exceed within the next thirty days within the current financial year, which is called mandatory Registration. then comes Voluntary Registration, for the businesses with exceeding of transaction extraordinary AED 187,500 within the previous twelve months or expected to exceed within the next thirty days throughout this financial year, the VAT registration is truly non-mandatory.

And for all the businesses whose transaction value is a smaller amount than the mentioned limit won’t be allowed to register VAT. However, that doesn’t mean that they’re restricted from VAT registration within the future. Once their transaction value exceeds the present value or is anticipated to exceed the outlined VAT registration threshold will get themselves registered. Consequently, they’ll be obtaining registered when the implementation date of VAT is, first January 2018.

In the above scenario, if you have got a better look, there are two phases to the journey of the business, Pre-Registration, and Post-Registration. Within the post-registration section, they’re needed to collect 5% VAT on taxable supplies, and also, they’re allowed to recover the Input VAT paid on purchases/expenses. Whereas, within the pre-VAT registration section, they had to pay VAT on their purchase/expenses but were unable to recover Input VAT. This can be as a result of because the registered business is allowed to recover input VAT.

Are businesses permitted to recover the VAT paid before VAT registration? And the answer is YES! The UAE VAT laws allow the recovery of input tax paid on products, services, and foreign products before the date of VAT registration. This can be allowed just for any of the following:

The receipt of products and services for functions aside from creating taxable supplies. If the products and services were used to make supplies that give the proper to input tax recovery upon tax registration. This suggests that the worth of the group action on that VAT was paid before registration was utilized in creating taxable supplies after registration.

Input Tax associated with the part of the Capital Assets that depreciated before the date of Tax Registration. This suggests that If a part of the asset is depreciated then Input tax cannot be recovered on such assets to the extent such assets are depreciated. For example, if you purchase a fixed asset with an expected life of 10 years and once you register for VAT the asset has only three years of use left. During this case, you’ll be able to reclaim only 30% of the VAT you originally paid.

1. If the Services were received quite 5 years before the date of Tax Registration

2. Where an individual has moved the goods to a different Implementing State before the Tax Registration within the State

Except for the above-mentioned instances, a registrant can claim the VAT paid on supplies before registration in all alternative cases only if the same has been used for making a taxable supply.

However, the UAE VAT additionally stipulates certain exceptional scenarios during which VAT paid before registration cannot be recovered. The following are the instances:

1. Goods and Services purchased to create non-taxable provides. This implies that you simply will recover the VAT, provided that it’s used for making taxable supplies including zero-rated supplies.

2. Input Tax associated with the part of the Capital Assets that depreciated before the date of Tax Registration. Input VAT on service received quite five years before the date of tax registration won’t be allowed to be reclaimed. This restriction is applicable only for the services provided and not applicable for goods.

3. If such goods were moved to another GCC country before tax registration.

Except for the instances listed above, you will be eligible to recover VAT paid before registration in all other cases if it’s used for creating the taxable supply.

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