The purpose of this Guide is to help you submit the Input Tax Apportionment Request Form to the Federal Tax Authority (“FTA”) in order to be able to use a special method of input tax apportionment. The Guide provides you with:

 an overview of the general input tax apportionment rules and the special methods
of input tax apportionment;
 an overview of the process for applying for a special method of input tax
apportionment; and
 the information which you will need in order to complete the form.

If you have additional questions regarding the process for applying for a special tax apportionment, please contact us at info@tax.gov.ae.

Input tax apportionment

Input tax which is incurred in respect of goods or services which are used partly for making supplies that allow for VAT recovery and partly for making supplies for which VAT is not recoverable is known as “residual input tax”, and it must be apportioned between those supplies. Recovery will be restricted to the proportion relating to supplies that allow for VAT recovery.
In order to identify the amount of the residual input tax, it is first necessary to exclude input tax which is either recoverable or non-recoverable in full. As a consequence, the first step is to perform the following calculations in respect of each tax period2:

1. Calculate the total value of input tax which is directly attributable only to supplies for which VAT may be recovered under Article 54(1) of the Federal Decree-Law No. (8) of 2017 (the “Decree-Law”).
2. Calculate the total value of input tax which is directly attributable only to supplies for which VAT cannot be recovered.
3. Calculate the total value of input tax that relates to both supplies for which VAT may be recovered and supplies for which VAT cannot be recovered. This is the residual input tax of the taxable person.

The next step is to determine the recoverable part of the residual input tax. The standard method for apportioning the residual input tax is provided in Articles 55(6)-(10) of the Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal DecreeLaw No 8 of 2017 on Value Added Tax (“Executive Regulations”) and involves the following calculations:

• Calculate the percentage to be applied to the residual input tax by dividing the total value of input tax which is directly attributable only to supplies for which VAT may be recovered by the sum of input tax which is directly attributable only to supplies for which VAT may be recovered and input tax directly attributable only to supplies for which VAT may not be recovered. The percentage should be rounded to the nearest whole number.

• Multiply the total value of residual input tax by the percentage calculated under Step 1 above. The resulting amount is the amount of residual input tax which can be recovered by the taxable person.

This calculation is required to be performed in each period in which the taxable person incurs input tax relating to the making of exempt supplies, or to activities that are not in the course of business. Following the period-by-period apportionments, the taxable person must perform a wash-up calculation for the whole tax year using the principles identified above, and make an adjustment as appropriate. Specifically, if there is a difference of more than AED 250,000 in any tax year between the recoverable input tax as calculated in accordance with the standard apportionment method and the input tax which would have been recoverable if the calculation was made on the basis of the actual
use of the goods or services, then the taxable person should make an adjustment to the input tax in respect of the difference. It should be noted, that the calculation of the “actual use” should be made in accordance with one of the special apportionment methods described later in this Guide, taking into account the guidelines regarding which special methods can be used by which types of businesses.

The FTA accepts, however, that the standard method of apportionment may not be appropriate in every situation. Each business is different, and the standard method of apportionment may give rise to outcomes that might not be reflective of the actual use of goods or services by the business. As a consequence, the FTA is introducing a number
of alternative methods of input tax apportionment to be used where the standard method does not provide an outcome that is reflective of the actual use of the acquired goods or services.
The special input tax apportionment methods which are available to taxable persons are:

• outputs based method;
• transaction count method;
• floorspace method; and
• sectoral method.

Not every special apportionment method will be available to every business. Instead, specific special apportionment methods will generally be available only to businesses from certain industry sectors.

For more information on these services, please contact us: