Reclaiming the Input VAT paid before registration

Can we reclaim the Input VAT paid before registration?

Yes. The recovery of input tax paid on goods, services and imported goods prior to the date of VAT registration is allowed, only if the goods and services were used to make supplies that give the right to input tax recovery upon tax registration. This implies that the purchases / expenses on which VAT was paid before registration were used in making taxable supplies after registration.

The recovery should be done in the VAT Return submitted for the first Tax Period following Tax Registration.

Exceptions

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

• Goods and Services purchased for the purpose of making non-taxable Supplies. This implies that, you can recover VAT, only if it is used for making taxable supplies including zero-rated supplies.
• Input Tax related to the part of the Capital Assets that depreciated before the date of Tax Registration. This implies that If 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 when you register for VAT the asset has only 3 years of use left. In this case, you can reclaim only 30% of the VAT you originally paid.
• Input VAT on service received more than 5 years prior to the date of tax registration will not be allowed to be reclaimed. This restriction is applicable only for services and not applicable for goods.
• If such goods were moved to another GCC country before tax registration.

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

The businesses registered after 1st January, 2018, should be aware of the benefit provided by this provision in reclaiming the Input VAT. Any absence in knowing this provision of law will lead to loss of Input VAT recovery. Also, it is important for businesses to note that reclaiming of VAT paid before registration is allowed only while filing VAT returns for the first return period post registration. Thus, businesses must ensure to file a return for the first tax period after carefully analysing the provisions discussed above. After, the filing of return of first tax period, recovery of input tax paid before tax registration cannot be made.