Input Tax vs Output Tax in UAE VAT – Explained with Examples (2025)

What Is Output Tax?

Output tax is the VAT a business charges to its customers on the sale of goods or services. It is collected on behalf of the Federal Tax Authority (FTA).

🔹 Example:

You sell a product for AED 10,000
Output VAT at 5% = AED 500
Invoice total = AED 10,500

This AED 500 is your output tax, which you must report and pay to the FTA in your VAT return.

What Is Input Tax?

Input tax is the VAT a business pays to its suppliers when buying goods or services for business use. This VAT can usually be reclaimed from the FTA if the purchases are related to taxable activities.

🔹 Example:

You buy office equipment for AED 2,000 + AED 100 VAT
That AED 100 is your input tax
You can reclaim it while filing your VAT return

How to Calculate VAT Payable to FTA

VAT Payable = Output Tax – Input Tax

Type	Amount (AED)
Output Tax	5,000
Input Tax Claimed	2,000
VAT Payable	3,000

If input tax > output tax, you may be eligible for a VAT refund or can carry forward the balance.

Conditions to Claim Input VAT in UAE

FTA allows input tax recovery if the following conditions are met:

The purchase is for taxable business purposes
A valid tax invoice is available
The supplier is VAT registered
VAT is correctly charged (5%)
Goods/services are not for personal use
Expenses are not blocked (e.g., entertainment)

What Input Tax Cannot Be Claimed?

Expense Type	Input VAT Claimable?
Client entertainment	❌ No
Personal expenses	❌ No
Staff gifts	❌ No
Business laptops	✅ Yes
Office rent	✅ Yes
Accounting services	✅ Yes

Where to Report Input and Output VAT?

In your VAT201 Return Form on the FTA portal:

Section	Entry Type
Sales & Output Tax	Output VAT
Purchases & Expenses	Input VAT
Net VAT Due/Refundable	Calculated

Common Input vs Output VAT Mistakes

Claiming input VAT on non-VAT invoices
Charging VAT to clients without TRN
Not adjusting for credit notes
Including exempt expenses in input VAT claim
Not reconciling input/output with invoices

Input Tax on Imports – Reverse Charge Mechanism

When importing goods into the UAE:

You don’t pay VAT at customs
FTA charges you VAT via reverse charge
You report both input and output tax on the same return

This allows neutral VAT impact, but must be recorded properly.

Most Searched FAQs (2025)

Q: Can I claim input VAT on car expenses?
A: Only if used 100% for business and not a passenger vehicle (restrictions apply).

Q: Can I claim input VAT if the supplier is not registered?
A: No. The supplier must have a valid TRN.

Q: What happens if I charge VAT but don’t remit output tax?
A: It’s a violation. FTA may impose penalties and interest.

Q: How long do I have to claim input VAT?
A: Within 6 months from the date of invoice.

Conclusion

Understanding the difference between input tax and output tax is crucial for proper VAT filing, accurate reporting, and cash flow planning. Claiming the right input VAT and charging the correct output VAT ensures your business remains FTA-compliant and penalty-free.

Need Help With VAT Filing or Reconciliation?

At Think Biz Management Consultancies, we help you:

Track and calculate input/output tax
Reconcile VAT across sales and expenses
File accurate VAT returns on time
Handle reverse charge for imports
Avoid penalties and errors in reporting

Contact us today for a free consultation.
Let us simplify your VAT process and keep your business audit-ready.

Contact number: ‪+971 50 983 0334‬

Email ID: info@alphabets.ae