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VAT Refund

A company typically qualifies for a VAT Refund when the Input Tax (VAT paid on business expenditures) is greater than the Output Tax (VAT collected from sales) within a given tax cycle. Although recovering excess VAT is expected, the official application process demands precise record-keeping and strict adherence to all FTA regulations to guarantee efficient and successful fund recovery.

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What is VAT Refund

The VAT Refund process is a core element of the Value Added Tax system, occurring when the Input Tax (VAT a business pays on its expenses and purchases) is greater than the Output Tax (VAT a business collects on its sales) during a specific tax period. This situation typically arises due to high capital expenditure or when a company deals mostly with zero-rated exports.

Under the Federal Tax Authority (FTA) system, the registered business has the right to file an application to officially recover the excess amount of tax paid back from the Authority. Expert management of this claim is crucial, as the FTA requires strict compliance and meticulous documentation to ensure the refund is successful and received without unnecessary delay.

VAT Refundable

  • Condition for Refund : A VAT refund is due when the Input Tax (VAT paid on purchases/expenses) is greater than the Output Tax (VAT collected on sales).
  • Typical Scenario : This often occurs when a business makes more purchases than sales within a given tax period (e.g., during major investments).
  • Minimum Threshold : To receive a direct refund, the excess amount must be more than AED 10,000.
  • Below Threshold Rule : Refunds below AED 10,000 will be automatically carried forward and offset against the VAT due in subsequent tax periods.
  • Filing Deadline : Businesses must file the VAT return within 28 days of the end of the tax period to claim the refund.
  • Validation Requirement : The FTA (Federal Tax Authority) may request additional documents to thoroughly process and validate the refund claim.

In summary

  • Refund Eligibility : VAT refunds allow businesses to recover Input Tax when their expenses exceed revenues for a tax period, provided they meet specific FTA conditions.
  • Audit Readiness : Maintaining proper VAT records is absolutely vital for claiming legitimate refunds and ensuring your documentation is audit-ready.
  • Expert Guidance : Companies should consult VAT experts and accountants (like KWS) to ensure full compliance and maximize the eligible refund amount.

Timeline for VAT refunds

  • Initial Review Period : The FTA will process and review the VAT refund application within 20 business days of the submission date.
  • Decision Notification : The taxpayer will be formally notified of the FTA’s final decision, confirming whether the refund claim has been accepted or rejected.
  • Extension Notification : If the review requires more time and exceeds the initial 20-day timeline, the FTA is obligated to notify the taxpayer regarding the extension of the deadline and the reason for the delay.