Apportionment of Input Tax – Article 55 – VAT Executive Regulations

Article 55 – Apportionment of Input Tax

1. Where there are quarterly Tax Periods, the Tax year shall be as follows:
   1. Where a Taxable Person’s Tax Period ends on 31 January and quarterly thereafter, the Taxable Person’s Tax year shall end on 31 January of every year.
   2. Where a Taxable Person’s Tax Period ends on the last day of February and quarterly thereafter, the Taxable Person’s Tax year shall end on the last day of February of every year.
   3. Where a Taxable Person’s Tax Period ends on 31 March and quarterly thereafter, the Taxable Person’s Tax year shall end on 31 March of every year.
2. Where the Tax Period is 12 months, the Tax year shall be the same as the Tax Period.
3. Where the Tax Period is 1 month, the Tax year shall be the total Tax Periods in the year ending on the last day of the calendar year.
4. In any other case where Clauses 2 and 3 do not apply, the Authority shall specify the Tax year.
5. To determine the Input Tax that could be recoverable, the Taxable Person shall apportion Input Tax as follows:
   1. Input Tax on supplies that wholly relate to supplies as specified in Clause 1 of Article 54 of the Decree-Law made by the Taxable Person shall be recoverable in full.
   2. Input Tax that does not relate to supplies as specified in Clause 1 of Article 54 of the Decree-Law made by the Taxable Person shall not be recoverable unless provisions allow otherwise.
   3. Input Tax that partly relates to supplies as specified in Clause 1 of Article 54 of the Decree-Law and partly not, shall be apportioned in accordance with Clause 6 of this Article and only that part that relates to supplies as specified in Clause 1 of Article 54 of the Decree-Law shall be recoverable.
6. The Input Tax that could be recoverable shall be calculated as follows:
   1. The Taxable Person shall calculate the percentage of Recoverable Tax calculated by reference to Article 54 of the Decree-Law to the sum of Recoverable Tax and non-Recoverable Tax for the Tax Period.
   2. The percentage calculated under paragraph (a) of this Clause shall be rounded to the nearest whole number.
   3. The percentage calculated under paragraph (b) of this Clause shall be multiplied by the amount of Input Tax referred to in paragraph (c) of Clause 5 of this Article to establish the recoverable portion of that Input Tax.
7. The calculations referred to above shall be undertaken in respect of each Tax Period where Input Tax incurred relates to making Exempt Supplies or to activities that are not in the course of Business.
8. At the end of each Tax year, the Taxable Person shall undertake the calculation mentioned in Clause 6 of this Article, but in respect of the entire Tax year just ended in the first Tax Period of its subsequent Tax year.
9. The Input Tax properly recoverable for the Tax year just ended as described in Clause 8 of this Article shall be compared to the Input Tax amount actually recovered in all the Tax Periods making up the Tax year, and an adjustment to the Recoverable Tax shall be made in the Tax Period mentioned in Clause 8.
10. If the difference in any Tax year between the Recoverable Tax as calculated under this Article and the Recoverable Tax which would arise if a calculation was made which reflects the actual use of the Goods and Services to which the Input Tax relates, exceeds AED 250,000 (two hundred fifty thousand dirhams), the Taxable Person shall, in the Tax Period referred to in Clause 8 of this Article, make an adjustment to the Input Tax in respect of the difference.
11. Where the application of the calculations mentioned in this Article would give a result which the Taxable Person considers would not reflect the actual extent to which the Input Tax relates to making Taxable Supplies, he may apply to the Authority to authorize the use of an alternative basis of calculation based on the list of accepted mechanisms issued by the Authority.
12. The Authority may accept that the Taxable Person may use an alternative mechanism of apportionment of input tax than that referred to in this Article from such a future date and as per any further conditions as determined by the Authority.
13. The Taxable Person may only apply to change the alternative mechanism with effect from at least two Tax years after he was first approved to use it.
14. The Authority may request such information from the Taxable Person as it believes is necessary to make a decision regarding application made under Clause 11 of this Article.
15. If the Authority accepts the application made under Clause 11 of this Article, it shall issue a Notification to the Taxable Person setting out the alternative calculation method and conditions for the use of such method.