UAE VAT: How should businesses handle deductible expenses?

In April 2023, we highlighted in Gulf News that the list of non-deductible expenses under the UAE corporate tax law refers to such input VAT that is 'recoverable' as compared to the input VAT 'actually recovered' under VAT laws.

- PANKAJ S. JAIN

A debate arose if an expense deduction would be allowed for such input VAT recoverable under VAT laws but has not been claimed in VAT returns?

The tax consultancy fraternity is recently abuzz with a view that such input VAT would not be allowed as an expense deduction. Businesses are being advised to separately account for all VAT on the purchases/ expenses where the input credit has not been recovered.

As the input credit eligibility is based on multiple factors, the input VAT may not be recoverable for various reasons. Identification of recoverable VAT and non-recoverable VAT could consume significant administrative and manpower cost. It will also be difficult to maintain an audit trail for tax audit purposes. Such a literal interpretation of the UAE corporate tax provisions could also impact the scope of other deductible expenses.

Fines and penalties