BDO Indirect Tax News

On 30 September 2025, the UAE Federal Tax Authority (FTA) published the much-awaited Input Tax Apportionment guide, which includes major updates and clarifications for businesses engaged in the provision of both taxable and exempt supplies. While the earlier update resulted in some confusion on inclusion/exclusion of ineligible credits, the updated guide provides comprehensive and structured guidance that addresses these concerns. This is a strategic effort of the FTA to support compliance by VAT registrants while optimising their eligible recovery.

Highlights of the Updated Guide

 

Topic	Information
Specified recovery percentage (SRP)	Taxable persons in the UAE can apply to the FTA to use a specified recovery percentage based on the previous year’s calculated recovery rate, reducing the burden of recalculating the recovery ratio for every period. The pre-requisites for applying for SRP are: 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 input tax (exempt or non-business supplies) Application is made to the FTA by the authorised signatory, the tax agent or the legal representative. The FTA’s decision approving the use of an SRP will be valid for four years and the registrant will not be allowed to change the method for at least two years following approval. A request for an SRP can be made to the FTA through the EmaraTax portal and also requires the submission of an ‘annual washup’ adjustment and if relevant, actual use adjustment calculations for the prior tax year, along with supporting reconciliations to submitted tax returns.
Clarification on blocked and non-recoverable input tax	The guide clarifies that all input tax that is specifically blocked under article 53 of the Executive Regulations is to be excluded when 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 newly updated 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, thus providing clarity to the input tax recovery ratio computation for businesses.
Approval validity clarified	Approval for special input tax apportionment methods is valid for four years for non-sectoral methods and two years for sectoral methods.
Prerequisites for application for special input tax apportionment	Applicants are required to provide the following information as part of the request: A cover letter that includes: A detailed description of the applicant’s business activities; 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 apportionment method. The calculations should be for the 12 months preceding the application (as applicable, or a shorter period if 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.
Response times emphasised	The FTA’s standard response times remains: 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.
Notifying the FTA in the 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. The FTA must be notified within 20 business days from the date a variance is identified. Additional details to be submitted in the notification are as follows: Confirmation and date of the 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 should remain aligned and current 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 treatment remain key.

Transitioning to the special input tax apportionment method requires a 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 and compliant transition.

Ashish Athavale
Mufaddal Safdari
BDO in United Arab Emirates