The Value Added Tax (VAT) system implemented in the United Arab Emirates allows businesses registered with the Federal Tax Authority (FTA) to recover the VAT incurred on their business expenses and purchases – known as input tax. This is done by offsetting input tax against the VAT collected on sales, called output tax.
Every registered tax payer in the UAE is required to generate and file a VAT return once every tax period. The tax period is either a month or a quarter (3 months) depending on the If the output tax exceeds the input tax in a tax period, the business must pay the outstanding balance to the FTA as VAT payable. This happens when VAT collected from customers is greater than VAT paid to vendors.
Conversely, if the input tax is greater than the output tax, the company will be entitled to a VAT refund for the excess amount. This typically occurs when a business makes more purchases than sales in a tax period. To receive a VAT refund, the amount must be more than AED 10,000. Refunds below this threshold will be carried forward to subsequent tax periods. Businesses must file a VAT return within 28 days of the end of the tax period to claim the refund. The FTA may ask for additional documents to process and validate the refund claim
VAT refunds enable businesses to recover input tax when their expenses exceed revenues for a tax period, subject to conditions. Maintaining proper VAT records is vital for claiming legitimate refunds. Companies should consult VAT experts and accountants to ensure VAT compliance and maximize refunds eligible
When a taxpayer submits a claim for VAT refund, the FTA will process and review the application within 20 business days of submission. The taxpayer will be notified regarding the FTA’s decision to accept or reject the claim. If the process exceeds the timeline of 20 days, the FTA will notify the taxpayer regarding the extension of the deadline
