UAE VAT Refund Process Explained | Requirements, Timelines & Claims

Refunds for VAT in the UAE.

Guide to the VAT Refund Process in the UAE:

• Requirements for Refunds: How to Claim Refunds of Overpaid VAT For most businesses in the UAE, the amount of VAT they pay is less than what they would owe after determining their final tax liability.
• VAT refunds can arise from the export, zero rate, or initial phase of their businesses.
• UAE VAT law provides for refunds of the excess amounts charged due to these transactions if all procedures outlined in the VAT Decree Law and the Tax Procedures Law are adhered to.
• Understanding how a VAT refund will occur and its effect on cash flow will help to ensure that you are fully compliant with the FTA. 

What does the term 'VAT Refund' mean in the UAE ?

Refundable tax is the amount of VAT paid to the FTA (Federal Tax Authority) that can be: Refunded (in full or in part) Used as a credit towards future VAT payments or penalties Carried over to future Tax Accounting Periods A refundable tax usually happens when the VAT input tax recoverable is greater than the VAT output tax for the same tax accounting period. 

VAT Refund Occasions.

Zero-Rated Supplies - Shipments of goods and services to countries that use a different standard rate of VAT than what the supplier charges are classified as zero-rated.

Businesses are allowed to charge 0% on these types of shipments (international freight, exports, etc.) and consequently be reimbursed for input VAT; therefore, refunds will be created due to a lack of or a minimal amount of output VAT.

Excess Amount of Input VAT - The difference between the input VAT that a business pays on its purchases and the amount of VAT that it collects on its sales is the amount that exceeds what the business is liable for; therefore, the business can keep on "rolling over" this excess amount of input VAT until it has unused amounts over time.

Exceeds Tax Paid in Error - In the case of VAT overpaid, the business will be able to apply for a refund of any amounts that exceed what the business is liable for. In most cases, the amount of excessive VAT paid above the actual liability will be allowed to be carried over from one month to the next. 

Carry Forward vs. Refund of VAT - which one is better?

Article 74 of the VAT Decree Law specifies that excess VAT will usually be carried forward. However, if this cannot be used to offset future VAT obligations, the taxpayer can claim a refund either via the VAT return or with a separate refund application.

In selecting the option that is best for you, please consider the following: Expected taxable turnover in the future. Your cash flow needs in the present. Your VAT compliance record.  

The timeline of the VAT refund process within the UAE 

To review refund requests, the Federal Tax Authority (FTA) has a maximum timeframe of 20 business days. When a refund request has been approved, the FTA has five business days to make payment or adjustment. Refunds may be offset by any outstanding VAT liabilities, including penalties. 

If tax liabilities are disputed, the VAT refund is withheld until the dispute is resolved. Errors made in refund applications can be rectified by voluntary disclosure, thereby preventing penalties. There are also several special VAT refund schemes for specific groups of people and entities as defined by the UAE VAT law, as follows: 

• UAE Nationals constructing their own home for personal use
• Foreign businesses that do not have an establishment in the UAE, provided there is reciprocity between the UAE and the home country of the foreign business
• Tourists exporting from the UAE any goods that they purchased during their visit to the UAE
• Foreign governments, diplomatic missions, and international organizations as per the provisions of applicable treaties.

Conclusion.  

A VAT Refund is not an automatic process - businesses have to classify claims appropriately, prepare accurate filings, and follow-up promptly. Filing UAE provides a business the opportunity to ensure compliance while avoiding penalties and recovering its excess VAT.