The Federal Tax Authority issued a clarification on the timeframe for recovering input tax. Input tax must be recovered in the first tax period where two conditions are met: the tax invoice is received and there is intent to make payment within six months of the agreed payment date. Intent to pay sometimes arises after quality control approval for manufacturers and construction firms. If input tax isn't claimed in the first eligible period, it can be claimed in the next period. However, if payment isn't made within six months, the input tax must be reduced in the next return and can be recovered once payment is made.

1. Timeframe for recovering Input Tax
The Federal Tax Authority has issued a Public Clarification (VAT P017) for “Timeframe
for recovering Input Tax”. This Public Clarification clarifies the FTA’s position relating
to
Input tax must be recovered in the first tax period in which two conditions are satisfied:
 The tax invoice is received and
 An intention to make the payment of consideration of the supply before the
expiration of six months after the agreed date of payment is formed
It is important to note that one should receive the tax invoice from the supplier and
intention to make the payment is formed. In many cases the intention to make the
payment arises after certain internal process. In the case of a manufacturing industry,
intention to make the payment for raw material is generally formed after completion
of quality control. Unless the quality control approves, the company doesn’t have an
intention to make the payment. Hence, the second condition, intention is formed on
the date when the quality control accepts the raw material. Similar situation arises in
construction industry.

2. Therefore, the taxable person should refrain to claim the input when tax invoice is
received and intention to make the payment is not formed.
What happens if the input tax is not claimed in the first tax period when both the
conditions are satisfied?
 The taxable person can claim in the next tax period subsequent to the first tax period
in which both the conditions were satisfied.
 In case, taxable person miss to claim the input tax in the subsequent tax period , the
taxable person should recourse to the voluntary disclosure.
What happens if the input tax is claimed but the taxable person fails to pay the supplier
after the expiry of 6 months from the due date of payment?
 Taxable person should reduce the input tax in the VAT Return in the tax period
following the expiry of the six-month period and
 Once the payment is made, the taxable person will be entitled to recover the input tax
in subsequent tax period.
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Timeframe for recovering Input Tax
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