A VAT-registered business charges VAT on its sales (Output VAT) and pays VAT on its purchases (Input VAT). The net amount due to, or refundable from, the FTA is Output VAT minus Recoverable Input VAT. Recovering input tax correctly is one of the most common areas of VAT risk, so here are the key rules to keep in mind.

Conditions to Claim Input Tax

Input tax can only be recovered if all of the following apply:

§  The claimant is VAT-registered.

§  The goods/services are used, or intended to be used, for taxable supplies.

§  The expense is for a genuine business purpose.

§  A valid tax invoice is held, and payment has been made or is intended within 6 months.

§  The input tax is not specifically blocked under the law.

Recovery by Type of Supply

§  Standard-rated supplies (5%): input tax is fully recoverable, subject to the conditions above.

§  Zero-rated supplies (0%) e.g. exports, international transport, qualifying new residential buildings, education and healthcare: no VAT is charged, but related input tax remains fully recoverable.

§  Exempt supplies e.g. bare land, local passenger transport, certain financial services: no VAT is charged, and related input tax cannot be recovered at all. This is the key difference from zero-rated supplies.

§  Reverse Charge Mechanism (RCM): applies to imports and specified domestic supplies (e.g. crude oil, precious metals, electronics, scrap, and from 14 Jan 2026, specified metals) between VAT-registered businesses. The recipient self-accounts for both output and input VAT.

§  Deemed supplies: goods/services given free of charge, assets used for non-business purposes, or goods retained on deregistration are treated as taxable supplies if input tax was originally recovered on them  subject to small-value and threshold exceptions.

§  Out-of-scope supplies: where the place of supply is outside the UAE (e.g. salaries, dividends), no VAT applies, but related input tax may still be recovered in limited cases under Article 54.

Blocked Input Tax

§  Entertainment (hospitality, shows, trips) for customers, officials, shareholders or investors  except flight-delay costs, new-employee hotel stays, business meeting refreshments, and employee business-trip expenses.

§  Motor vehicles (seating ≤10) available for personal use, and related maintenance  except taxis, emergency vehicles, and rental fleet vehicles.

§  Goods/services given free to employees for personal benefit  except where required by labour law, contractually necessary for the role, employee health insurance (incl. family), or where it is itself a deemed supply.

Timing of Recovery

Input tax must be claimed in the first tax period (or the next one, if missed) in which both a valid tax invoice is held and payment has been made or intended within 6 months of the due date. If payment is not made within 6 months, previously claimed input tax must be reversed and can be re-claimed once actually paid. Beyond the one additional period allowed, recovery is only possible via a Voluntary Disclosure.

Important update: Effective 1 January 2026, a strict 5-year limitation now applies to all excess input VAT credit balances, running from the end of the tax period in which the credit arose  after which it permanently expires. Older balances (2018–early 2021) get a one-time transitional window and must be claimed or offset by 31 December 2026.

Input Tax Before VAT Registration

VAT paid before registration on goods/services (received within the last 5 years), imported goods, and the non-depreciated portion of capital assets can be recovered after registration, provided they were for business purposes and continue to be used to make supplies that carry a right to recovery.

In Summary

Input tax recovery depends on the nature of the supply, the type of expense, and strict timing rules  and the new 5-year limitation on credit balances makes this more time-sensitive than ever. We recommend reviewing older VAT credit balances now, ahead of the 31 December 2026 deadline, and ensuring all claims are properly documented and timed.