VAT Guide on Input Tax Apportionment

On 30 September 2025, the Federal Tax Authority(‘FTA’) published the much-awaited Input Tax Apportionment guide (VATGIT1). The updated guide introduces major updates and clarifications to the Input apportionment for businesses engaged in providing both taxable and exempt supplies.
We have summarized the key highlights in the updated guide published below:
 
S.No. Topic Highlight
1 Specified recovery percentage(‘SRP’) Taxable persons in the UAE can apply to the FTA to use a specified recovery percentage based on previous year’s calculated recovery rate, reducing the burden of recalculating the recovery ratio for every period.
Pre-requisites for applying for SRP:
  • Applicants have been registered for VAT for at least 12 months
  • Applicants are undertaking supplies for which they may recover the Input Tax (taxable supplies) and other supplies for which they may not recover the Input Tax (exempt or non-business supplies).
  • Application is made to the FTA by either the authorized signatory, tax agent or by the legal representative.
The FTA’s decision approving the use of an SRP shall be valid for four (4) years and the Registrant will not be allowed to change the method for at least two (2) years following the approval.
The request for SRP can be made to the FTA through the EmaraTax portal and also requires submission of an ‘annual washup’ adjustment and if relevant, actual use adjustment calculations for prior tax year along with supporting workings and reconciliations to submitted tax returns.
2 Clarification on blocked and non-recoverable input tax The recent guide explicitly clarifies that all input which is specifically blocked under Article 53 of the Executive regulations is to be excluded while calculating the recovery ratio.
The amended Executive Regulations published in October 2024 replaced the reference to “recoverable and non-recoverable tax” with the broader term “Input Tax,” which includes both common input tax and blocked expenses.
However, the recent published guide clarifies that the input tax recovery ratio must be calculated using both recoverable and non-recoverable input tax, while explicitly excluding blocked input tax as defined under Article 53 of the VAT Executive Regulations offering clarity to the input tax recovery ratio computation for businesses.
3 Approval validity clarified Approval for special input tax apportionment methods is valid for:
  • 4 years for non-sectoral methods
  • 2 years for sectoral methods
4 Prerequisites for application for Special Input tax apportionment to the FTA Applicants are required to provide the following information as part of the request:
  • A cover letter that includes the following:
    • A detailed description of the Business activities of the Applicant,
    • The special Input Tax apportionment method to be used, and
    • The reasons for applying for a special Input Tax apportionment method.
  • Historical calculations of Residual Input Tax apportionment in Excel format using the standard method of apportionment. The calculations should be for the period of 12 months preceding the application (as applicable or a shorter period if the business has been conducted for less than 12 months)
  • Calculations of the Residual Input Tax apportionment in Excel format for the same period as above but using the special method requested by the Applicant
5 Response times emphasized FTA’s standard response times remain unchanged:
  • 40 business days for non-sectoral method requests
  • 60 business days for sectoral method requests
Applicants must respond to any FTA queries within 40 business days.
6 Notifying FTA in case of any variance Registrants are required to notify the FTA if the actual recovery rate for the full tax year deviates by more than 10% from the rate initially submitted.
It is important to note that FTA is required to be notified within 20 business days from the date when such variance is identified.
Additional details to be submitted during notification are as follows:
  • Confirmation and date of the identified variance.
  • Explanation for the discrepancy.
  • Details of any changes in business operations.
  • Nature and specifics of those changes (if applicable).
  • Full-year recovery rate calculations, including an Excel-based annual washup.

BDO Insights:

Businesses in the UAE need to stay aligned with the evolving VAT regulations, which the FTA continues to update in response to the changing needs of the business landscape. The FTA’s proactive approach and commitment to delivering clear and timely guidance reflect its ongoing efforts to support taxpayer compliance and enhance regulatory clarity. To ensure accurate VAT recovery and continued compliance, maintaining strong documentation and regularly reviewing VAT treatments remain key.

Transitioning to the special input tax apportionment method requires careful review of historical data, system updates, and accurate sector classification. Challenges may include data gaps, methodology alignment, and obtaining FTA approval. Early engagement with the updated guidelines and a comparative analysis of available methods are essential for a smooth, compliant transition.

At BDO, we are well-positioned to support your business in evaluating current VAT processes, implementing new FTA directives, and exploring the Special Tax Apportionment Method if beneficial. Our goal is to help you maximize VAT recovery while ensuring regulatory compliance.