SKP Group
6 January 2019
UAE VAT Updates: Clarification on Date of supply for Independent Directors and VAT Guide for Input Tax Apportionment

Clarification on Date of supply for Independent Directors [1]
VAT is applicable to fees received on board meetings by the Independent director since there is no employer-employee relation between the director and the company (subject to the registration threshold). The Federal Tax Authority (FTA) has now provided clarity on the date of supply applicable in case of Board fee paid to Independent directors under different scenarios as tabulated below.
Scenario Date of supply
Board fees known upon conclusion of Annual General Meeting Though services are provided prior to date of AGM, the FTA is of the view that services are deemed to be completed only upon conclusion of the AGM. Accordingly, Date of supply shall be earliest of–
  • Date when the Board fees are known
  • Date of issuance of tax invoice (to be issued within 14 days from date of supply)
  • Date of receipt of payment
Board fees known at the outset and involve periodic payments Date of supply would be earliest of:
  • Date of issuance of tax invoice
  • Due Date of payment as shown on the tax invoice
  • Date of receipt of payment
  • 12 months from date of provision of services where none of the above events have occurred
Board fees known at the outset however there are no periodic payments Date of supply would be earliest of:
  • Date of issuance of tax invoice
  • Date of completion of provision of services
  • Date of receipt of payment
The above clarification would enable Independent Directors to determine the point of taxation for services provided and VAT would need to be computed by 28th of next month following the return filing period during which the date of supply has triggered.
Special Methods for Input Tax Apportionment [2]
VAT paid on supplies received is typically allowed as Input VAT recovery to a taxable person in UAE unless the taxable supply received is used for non-business purposes or making exempt supply. The taxable person engaged in provision of both taxable and exempt supplies is required to recover Input Tax directly attributable to taxable supplies (including zero-rated supplies) and reverse input tax attributable to exempt/non-business supplies. However, in case where the input tax is incurred in respect of goods or services which are used partly for making taxable supplies and partly for exempt/ non-business supplies (residual input tax), the portion of input tax that can be recovered will need to be determined.
The same was required to be determined as per the standard method of apportionment, whereby the residual input tax was apportioned on the basis of ratio of recoverable input tax (attributable to taxable supplies) to non-recoverable input tax (attributable to exempt/ non-business supplies). However, there was a challenge since the standard method of apportionment may not be appropriate in every situation. For example- in case where the taxable person is unable to attribute the Input VAT to a particular activity, there was a challenge on computation of input VAT recoverable for the residual input tax and businesses were unable to recover the same. The same was realised by FTA and it was proposed to introduce alternative methods of computation of input VAT recoverable.
Given the above background, the FTA has recently issued VAT Guide VATGIT1 in the last week of December 2018 titled ‘Input Tax Apportionment: Special Methods’ outlining alternative methods that may be applied by a taxable person to determine the value of input VAT recoverable. We have outlined below an overview of the special input tax apportionment methods, eligibility and procedure involved in applying for the same.
Who is eligible to apply for a special input tax apportionment method?
Any taxable person who fulfils the following conditions would be eligible to apply for a special input tax apportionment method:
  • The applicant has been registered for VAT for at least 6 months,
  • The applicant makes both taxable supplies and exempt supplies, and
  • The standard method of input tax apportionment has been applied, however it is observed that the same does not give a fair and reasonable result to input tax recovery, especially where the difference between the recoverable input tax computed in accordance with the standard input tax apportionment methods and input tax based on actual use of goods or services is more than AED 250,000 in a tax year.
What are the different input tax apportionment methods which are available to a taxable person and which sectors are eligible to apply for the same?
Method Eligible sectors Manner of computation
  • Outputs based method

  • Insurance companies (Islamic and non-Islamic)
  • Retail banks (Islamic and non-Islamic)
  • Banks engaged in certain aspects of wholesale and/or investment banking (Islamic & non-Islamic)
  • Providers of local passenger transportation services
Taxable supplies * 100
Total supplies (taxable + exempt + non business)

  • Transaction Count method

  • Banks (Islamic and non-Islamic) engaged in wholesale and investment trading activities
Taxable transaction count * 100
Total transaction count

  • Floorspace method

  • Businesses which deal with supplies (sales and rental) of commercial and residential properties, including real estate companies and other businesses which sell or rent out real estate on an ongoing basis
Floorspace (in sqm) used in taxable activity * 100
Total floorspace (in sqm)

  • Sectoral method
    • Headcount method
    • Outputs method

  • Large, complex banks and insurance companies, which operate through different divisions – e.g. banks which have retail and investment banking divisions; or insurers where they write life and non-life contracts.
  • This method can also be used by different entities who are part of the same tax group​

Under such method, businesses would be required to allocate residual input tax which relates to a particular sector and divide the remaining residual input tax based on below methods-
  • Headcount method
    Number of staff[3] in the sector *100
    Total number of staff

  • Outputs method
    Value of supplies in the sector * 100
    Total value of supplies + non business activities
Once the remaining residual input tax is divided, separate apportionment methods will need to be assigned as may be appropriate for that specific sector

What is the procedure of application for special method of input tax apportionment?
  • Applicant to determine eligibility of applying for a special input tax apportionment method.
  • Basis the nature of business- applicant to determine the most appropriate method available to their specific business type.
  • Applicant/appointed tax agent/legal representative of the applicant/representative member of that tax group to email duly filed “Application Form for Input Tax Apportionment”[4] in editable format along with relevant calculation sheet/ prescribed information to - “”
The applicant will receive an email notification upon successful submission of the Input Tax Apportionment Request Form.
  • FTA may take up to 40 business days to respond to the initial input tax apportionment request if the applicant has selected a non-sectoral method, and up to 80 business days in case of applicant having selected a sectoral method. In case the FTA requires any additional information, the same shall be communicated to the applicant and the period of 40/80 business days would be applicable from date of submission of such response.
  • The applicant may be required to provide evidence that the special method of apportionment will be more appropriate than the standard method.
  • The FTA’s decision in regards to the application shall be communicated through email. Typically, the approval for a special method shall be valid for a period of four years in the  case of a non-sectoral method and for two years in the case of the sectoral method.
  • It is pertinent to note that it is not compulsory for a VAT-registered person to apply for a special apportionment method.
  • It should be noted that the FTA will reject applications where the applicant has applied for a special input tax apportionment method which is not applicable to its specific type of business.
  • Any applications approved by the FTA will be effective from 1 January 2019 at the earliest.

[3] To be measured on income generating (not back office staff), unless justified under special circumstances
SKP Comments
The FTA had earlier issued detailed guide[1] on applicability of VAT on Director services, however date of supply of such services was not discussed thereunder. The current clarification is aimed to address that question. Considering the clarification provided, it is essential that the existing VAT computation on such services is relooked at to determine the due date of payment of VAT liability.
Further, the detailed guide on manner of computation of recoverable Input VAT was a much awaited document and would be welcomed by businesses engaged in provision of taxable as well as exempt/ non-business supplies. Such businesses would be required to relook at their existing computation of recoverable Input VAT in terms of applicable special apportionment method and evaluate whether an application is required for computation of Input VAT recoverable on residual Input tax based on the special methods prescribed by the FTA.
Before making such application, it is important to bear in mind that the adjustment of difference between recoverable tax as per standard apportionment method and as per special apportionment method would be allowed only in case where such difference exceeds AED 250,000 during the tax year (which was the threshold mentioned in the Executive Regulations as well) and the ability to provide documentary evidence to substantiate that the special method of apportionment will be more appropriate than the standard method.
Given this, it appears that smaller tax payers may have to adopt the filing of clarification only for determination of recoverable input tax. Nonetheless, with this guidance the evaluation criteria are in place.

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