Three tests, and what fails each
| Test | Requirement | Typical failure |
|---|---|---|
| Purpose | Incurred for making taxable supplies | Private or partly private use claimed in full |
| Purpose | : | Costs relating to exempt supplies recovered in full |
| Evidence | A valid tax invoice held | Supplier statement or proforma relied on instead |
| Evidence | : | Invoice addressed to an individual, not the entity |
| Blocked items | Not on the restricted list | Entertainment recovered |
| Blocked items | : | Motor vehicles available for private use |
| Timing | Claimed in the correct period | Claimed late, outside the permitted window |
The evidence rows account for more lost recovery than the other two combined. The entitlement was real; the paperwork could not support it, which is an avoidable way to lose money.
Working through it
Input tax recovery is the mechanism that makes VAT a tax on consumption rather than on business activity. Without it, VAT would compound at every stage of a supply chain and businesses would be taxed on their inputs.
So the default is recovery, and the restrictions are exceptions. That framing matters, because businesses sometimes approach recovery defensively and under-claim, which costs them just as surely as over-claiming creates exposure.
The three conditions are straightforward in principle. The purchase must relate to making taxable supplies. You must hold a valid tax invoice. And the expenditure must not fall into a specifically blocked category.
Where it becomes difficult is at the edges: purchases used for both business and private purposes, overheads in a business making both taxable and exempt supplies, and costs incurred before registration. Each has its own treatment, and none is intuitive.
What a valid tax invoice actually requires
This is where most recovery is lost, so it is worth being specific. A valid tax invoice must show:
- The words “Tax Invoice” clearly displayed
- The supplier’s name, address and tax registration number
- Your name, address and TRN: not an individual’s name
- A sequential invoice number and the date of issue
- A description of the goods or services
- The unit price, quantity, rate of tax and amount payable in AED
- The total VAT payable in AED, with the exchange rate where another currency is used
A supplier statement is not a tax invoice. A proforma is not a tax invoice. A payment receipt is not a tax invoice. And an invoice addressed to an employee personally does not support recovery by the business, however clearly the cost was business-related, which is a common and entirely avoidable loss on travel and subsistence.
Apportionment and blocked items
Two categories of restriction operate quite differently.
Apportionment applies where a cost serves both recoverable and non-recoverable purposes. A vehicle used partly privately is recoverable only as to its business proportion, on a basis you can defend. A business making both taxable and exempt supplies must apportion its overheads, turnover-based by default, with an alternative method available on application where that produces an unfair result.
Blocking applies to specific categories regardless of business purpose. Entertainment is the clearest: hospitality provided to customers is a genuine business cost, fully deductible in some respects, and the input tax is nonetheless restricted. Motor vehicles available for private use are similarly restricted even where business use predominates.
The distinction matters because apportionment rewards good records, a defensible business-use percentage recovers more than a conservative guess, while blocking does not respond to evidence at all.
Recovery before registration, and late claims
Two timing situations that businesses frequently get wrong in opposite directions.
Pre-registration input tax. There are provisions allowing recovery of VAT incurred before registration in defined circumstances, subject to conditions on timing and on the goods or services still being held or used for taxable supplies at registration. For a business that registered after a significant capital phase (a fit-out, an equipment purchase) this can be a substantial and entirely legitimate claim that is simply never made.
Late claims. Input tax should be recovered in the period in which the entitlement arises and the invoice is held. There are limits on how far a claim can be deferred, so an invoice found in a drawer two years later is not necessarily recoverable.
Both are worth checking rather than assuming. The first is money left on the table; the second is a claim that may not survive review.
The recovery businesses leave behind
Most attention on input tax goes to over-recovery, because that is what creates exposure. Under-recovery gets far less, and in our experience it is at least as common, it simply costs quietly rather than loudly.
- Bad debt relief: VAT already accounted for on invoices the customer never paid, recoverable once six months have elapsed, the debt is written off and the customer notified. Construction and trading ledgers routinely carry unclaimed relief
- Pre-registration input tax: frequently substantial where a business registered after a fit-out or equipment purchase, and almost never claimed
- Apportionment set too conservatively: a partly exempt business using a turnover-based method where floor area or headcount would give a fairer and higher recovery
- Costs coded to a non-recoverable category by default during system setup, and never revisited
- Reverse charge input tax declared as output tax but never recovered on the other side, which turns a nil-effect entry into a real cost
The last one is worth checking specifically. A business that has started making reverse charge entries but only populates the output side has created a liability out of a mechanism designed to be neutral.
What people get wrong
- Recovering on a supplier statement or proforma, neither of which is a tax invoice.
- Recovering on invoices addressed to an individual rather than the business.
- Claiming mixed-use costs in full with no apportionment basis.
- Recovering in full while making exempt supplies, which requires apportionment.
- Recovering on entertainment or vehicles available for private use.
- Under-claiming defensively, which costs money just as surely as over-claiming creates exposure.
- Never checking pre-registration input tax after a capital phase.
What to do about it
- Check that invoices are addressed to the entity, not to individuals.
- Confirm you hold actual tax invoices for significant claims, not statements.
- Establish whether you make any exempt supplies, which triggers apportionment.
- Set a defensible business-use basis for mixed-use costs.
- If you registered after a capital phase, check pre-registration recovery.
Related questions
Frequently Asked Questions
What is input tax?
The VAT you pay on business purchases. Recovery is your right to offset it against the VAT you charge on sales, which is what makes VAT a tax on consumption rather than on business activity.
What do we need to recover input tax?
Three things: the purchase must relate to making taxable supplies, you must hold a valid tax invoice, and the expenditure must not be on a blocked item. The middle one accounts for most lost recovery.
Is a supplier statement enough?
No. A statement is not a tax invoice, and neither is a proforma or a payment receipt. A valid tax invoice has prescribed contents including both parties’ TRNs and the VAT amount in AED.
The invoice is in our employee’s name. Can we recover?
Generally not. An invoice addressed to an individual does not support recovery by the business, however clearly the cost was business-related. It is a common and entirely avoidable loss on travel and subsistence.
What is blocked expenditure?
Categories where input tax cannot be recovered regardless of business purpose, entertainment, and motor vehicles available for private use, being the main ones. Unlike apportionment, blocking does not respond to better evidence.
How do we handle a car used for both business and private use?
Recovery is restricted, and where apportionment applies you need a defensible basis for the business proportion rather than an assertion. Vehicles available for private use are also subject to specific blocking rules, so check the position rather than assuming apportionment alone applies.
We make some exempt supplies. Can we still recover?
Partially. Costs attributable to taxable supplies are recoverable in full, costs attributable to exempt supplies are not recoverable at all, and overheads supporting both are apportioned, turnover-based by default.
Can we recover VAT from before we registered?
There are provisions allowing it in defined circumstances, subject to conditions on timing and on the goods or services still being held or used for taxable supplies. For a business that registered after a fit-out or equipment purchase, it can be a substantial claim that never gets made.
How late can we claim input tax?
It should be recovered in the period in which the entitlement arises and you hold the invoice, and there are limits on deferral. An invoice found two years later is not necessarily recoverable, so it is worth checking rather than assuming.
It is the single most common reason genuine recovery is lost, and it is entirely avoidable. Worth checking on travel, subsistence and anything an employee bought.
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Last reviewed 27 July 2026. Rates, thresholds and deadlines change, the e-invoicing provider deadline has already moved once. Confirm current requirements with the Federal Tax Authority before acting, or ask us to check your position.