Updated VAT Guide on Input Tax Apportionment

• A glossary of key terms has been added to the Guide.
• The FTA has outlined how to determine the tax year end in special cases (i.e. deregistration and VAT group changes).
• In accordance with the VAT Executive Regulations, it has been clarified that where the taxpayer’s tax year is less than 12 months, the AED 250,000 threshold for an actual use adjustment should be prorated. 

• To apply for an SRP, the taxpayer must be VAT registered for at least 12 months. 
• The SRP method is determined as follows: 
  • If the taxpayer already has a special method application approved by the FTA, the same special method should be used for the SRP. 
  • If the taxpayer does not have a special method application approved by the FTA, but a special method prescribed by the FTA may be applicable, the SRP application should use the same special method. 
  • If the taxpayer does not have a special method application approved by the FTA, and there is no special apportionment method suitable, the SRP should be based on the standard apportionment method. 
• With the FTA’s approval, the taxpayer can recover Residual Input Tax during the tax year using an SRP, based on the previous tax year’s activities. At the end of the tax year:
  • The taxpayer must carry out an annual wash-up calculation to check the actual recovery rate based on that tax year’s activities.
  • Once the actual recovery rate is calculated, it is used both to adjust the current tax year’s recovery (if needed) and as the recovery rate for the following tax year.
• The SRP approval is valid for 4 years with no option to change the SRP method for at least 2 years. 
• When requesting an SRP under the sectoral method of input tax apportionment, the taxpayer must provide a single recovery rate for the entire Taxable Person. This SRP would be used by the taxpayer for calculating input VAT recovery on all its Residual Input Tax during the relevant tax year. 

SRP Application

• An application to use an SRP must be submitted via the Emaratax platform. 
• When applying for the SRP, the taxpayer must submit its annual wash up calculation and its actual use adjustment calculation for the previous tax year, along with the proposed SRP. 
• If applying for the SRP under the sectorial method, the taxpayer should also submit a breakdown of each sector’s recovery rate as well as the proposed single recovery rate for the entire Taxable Person. 

• While the FTA has 40 – 60 business days to respond to a submission, it can extend the timeframe required for its review of the application. 
• A taxpayer has 40 business days to respond to an FTA information/documentation request regarding the application. Otherwise, the application may be automatically closed on Emaratax. 
• The FTA will notify the taxpayer of its decision within 5 days of the decision being made. 
• If there is a change in business (resulting in a variance of more than 10% from the recovery rate provided to the FTA during the application process) the taxpayer must notify the FTA within 20 business days from when the difference was identified. Failure to notify the FTA may result in the approved special method not applying from the date on which a variance was identified.
• In the event that the validity of an approval has expired and no renewal application has been submitted, the taxpayer must revert back to the standard method.