The Value Added Tax (VAT) was rolled out in the UAE on 1st Jan 2018. VAT is a type of consumption tax levied on goods and services at the time of its sale or purchase. It was a progressive measure taken by the government to raise tax revenue for improving the economic infrastructure of the country.
There is no denying the fact – no matter where you work whether mainland or free zone, it is mandatory to apply for VAT registration if you cross an annual turnover of AED 375000. Voluntary registration is also available if your revenue is expected to cross AED 187500.
However, you’re given the privilege to request for VAT refund, when you file your quarterly VAT Returns.
What is a VAT Refund?
VAT Refund is the amount you are eligible to recover from the FTA after the tax adjustments. It is usually claimed on the excess input tax.
What is excess Input tax?
VAT compliant companies are legally obliged to file VAT returns on their sales and purchases. What they pay toward their purchases is termed as Input tax whereas the VAT they collect from people through sales is classified as Output tax. These taxes amounts are then equated with each other.
If your input tax is higher then you are eligible for a VAT refund for the excess amount.
On the other hand, if the output tax is higher, then you will have to pay the balance amount to the FTA (Federal Tax Authority).
How to manage the excess Input tax?
The are two options available with you:
1) Claiming VAT Refund of the excess Input tax: You are eligible to recover it by requesting a refund and get your money back.
2) Natural carry forward: The excess Input tax, if unclaimed, will be carried forward to the next financial period. You can either choose to claim it in the future or use the money to settle any tax penalties or payable tax.
While filing your VAT returns online, if you find excess Input tax which can be claimed, you can check ‘Yes’ in box no. 15. This field indicates your wish to refund the excess VAT. However, If you choose ‘No’ the amount will be carried forward to the next tax period.
After filing, you will also have to fill out a VAT 311 Form, which is the application for refund.
Procedure to submit the application for refund
- Launch FTA e-services portal on your browser
- Click on the VAT button on the menu bar to go to the page
- Now, click on the ‘VAT311-VAT Refund’ tab to open ‘VAT Refund Request’ form.
- The form will have the following mandatory and pre-populated fields.
- Tax Registration Number, Name of the Entity: This is a pre-populated field. The system fetches these details from the profile you created during VAT Registration. However, you are required to ensure it is correct.
- Total amount of Excess Refundable Tax: This is also a pre-populated field, which shows your excess Input VAT for the period (after deductions, in case of penalties)
- The amount you wish to have refunded: Enter the amount you wish to receive. The amount should be less than or equal to the amount shown in ‘Total amount of Excess Refundable Tax’ box.
- Remaining amount of eligible excess refundable tax: This box shows the balance amount. You can have this amount refunded in the future, through the same procedure.
- Late registration penalty: This field shows the penalty amount, which you are charged for late VAT registration. The below table will help you understand how this appears:
|1. You don’t have a penalty||The amount will be shown as Zero|
|2. You were charged and you paid the penalty||The amount will be shown as Zero|
|3. You are a defaulter and yet to pay the penalty||The respective penalty amount will be shown in the field|
- Authorized Signatory and Declaration: The Authorized Signatory box is pre-populated, so check the declaration box and click submit.
Now that your refund request is submitted, you will have to wait for the processing of your request. The FTA will soon send an email notifying on the status of your application. Upon approval of your refund request, your amount will be disbursed and a confirmation email will be sent to you. You can check for the amount in the ‘My Payment’ section of the portal and acknowledge the mail.
Contact a registered company formation agent if you have any doubts on claiming VAT refund and filing VAT returns.