Input VAT Apportionment: When and How to Apply It in the UAE

 Introduction

Under UAE VAT law, businesses can recover input VAT only on taxable supplies. But what happens when your expenses relate to both taxable and exempt supplies? That’s where input VAT apportionment comes in.

Here, we explain when apportionment is required and how to calculate and apply it—accurately and compliantly.

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✅ What Is Input VAT Apportionment?

Input VAT apportionment is the process of dividing your input VAT between:

• Recoverable VAT (for taxable supplies)

• Non-recoverable VAT (for exempt or non-business use)

If your expenses relate to both types, you can only reclaim the portion related to taxable activities.

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📌 When Is Apportionment Required?

You must apply input VAT apportionment if:

• You make both taxable and exempt supplies (e.g. a bank offering loans and fee-based services).

• You incur shared expenses like rent, utilities, office supplies, advertising, or consulting that support both activities.

• You're involved in real estate (residential rental is exempt; commercial leasing is taxable).

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📊 How to Apportion Input VAT

FTA allows businesses to use either:

1. Standard Method (Turnover-Based)

This is the default method.

Formula:

(Taxable Supplies ÷ Total Supplies) × Total Input VAT = Recoverable VAT

🔹 Used on a quarterly basis

🔹 Reconciled with annual adjustments

🔹 Requires proper documentation of exempt vs taxable turnover

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2. Special Method (Subject to FTA Approval)

Used when the standard method is not suitable.

Examples include:

• Floor-space-based allocation (for property developers)

• Time-based use (for shared assets or resources)

• Cost driver basis (where costs link to output)

📝 Requires pre-approval from FTA and submission of justification.

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🧾 Records You Must Maintain

• Tax invoices for all shared expenses

• Breakdown of taxable vs exempt revenue

• Calculation sheets and apportionment working papers

• Any FTA approval letters (for special methods)

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⚠️ Common Mistakes to Avoid

• Applying apportionment to all expenses (some may be 100% recoverable)

• Claiming VAT on exempt supplies

• Using incorrect turnover figures

• Forgetting annual adjustments

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🧠 Final Thoughts

Input VAT apportionment is a complex but essential aspect of VAT compliance in multi-activity businesses. By applying the right method and keeping proper records, you can maximize recoverable VAT and reduce the risk of penalties.

Need help with your VAT calculation, apportionment review, or FTA submissions? Contact Sheikh Anwar Accounting & Auditing LLC for expert VAT support.

📧 info@sa-auditors.com

🌐 www.sa-auditors.com