Charging output VAT on taxable supplies is an obligation on you, whereas claiming input VAT is an option subject to certain conditions. While dealing with numerous clients and facilitating various VAT audits with FTA, we have gathered certain tweaks that you should always do to avoid VAT claim rejection.
- Always Get VAT Compliant Tax Invoice from your Supplier
Claim input VAT in the Tax Return only after getting the invoice. If the tax invoice is not available, do not claim the input VAT in that tax period. You have the option to claim the input VAT in your subsequent Tax Period as and when you receive the Tax Invoice. Also please note that the Tax Invoice should be VAT compliant. - Be Ready to Provide the Tax Records to FTA within 5 Days from the Audit Notice
As soon as you receive the email from FTA regarding Audit or Refund Verification, you will have 5 days to respond and provide all info. The best way is that as soon as you file your periodic VAT Return, prepare a folder on your computer and put all your VAT reconciliations and relevant data so that you can respond to FTA immediately. - Do Not Claim Input VAT on Restricted/Blocked Transactions
Never claim input VAT on Entertainment Expenses, vehicles available for private use and free goods to staff. Such claims would straight away get rejected by FTA and also fine is imposed as claiming such input results in underpayment of tax payable - Claim Input VAT Under Reverse Charged Mechanism (RCM) Only Where Allowed
RCM input VAT claim is not allowed by default. There is a common misconception that you can always claim RCM input VAT. The truth is that you can only claim input VAT RCM where it is related to a taxable supply and does not fall under blocked input category. e.g. If you are an insurance company which is providing both health insurance (taxable supply) and life insurance (exempt supply). In such case when some office equipment is imported solely for the life insurance business, you cannot claim in the RCM input VAT. - Claiming the Input VAT After It is Time-barred
You can claim your input VAT only in the period (or subsequent period) where the following two conditions are fulfilled.
1) You have received a valid Tax Invoice
2) Your intention to pay that invoice within 6 months of the due date is established (e.g. approval or acceptance of the invoice without dispute)