VAT q&a: "Should I pay a year's VAT upfront on a new office lease?'

The company is moving to a new location and the commercial landlord wants 12 months of tax paid in advance

KT0M59 View of Fujairah City at dusk. United Arab Emirates, Middle East
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We are moving to a new office soon. The landlord has asked us to pay the whole VAT for the year in one initial cheque and then the rest of the rent amount in six equal instalments spread over 12 months. When can I claim the input VAT? MC, Fujairah

This is something I see regularly in my work accounting for annual commercial property leases. You don’t mention how the landlord intends to invoice you for the rent. However, I suspect the reason he has asked for all the VAT upfront is because he intends to issue one tax invoice for the whole year at the start of the contract, which would include the VAT on the entire annual amount.

As you will be aware, the timing of accounting for both input and output VAT is dependent on raising or receiving a VAT invoice and is not tied to the movement of funds on the receipt or payment of invoices. Therefore, as soon as your landlord raises the invoice he will need to account for and pay over the VAT on the full invoice amount.

By asking you to pay the VAT at the start of the contract, he will have received the tax from you before he has to pay it to the Federal Tax Authority. If he were to split the gross amount, including the VAT, over six equal cheques, he would have to pay the full tax amount immediately but would receive the tax from you spread across the six cheques. This would effectively create a cash-flow disadvantage for him.

If you pay the VAT upfront against one invoice, you can also reclaim it at the start of the contract. However, if the landlord intends to issue six tax invoices, one for each of the cheques, then you should not agree to pay the VAT upfront, as he would then have collected the VAT from you before he has to pay it over, and before you can reclaim it.

My company registered for VAT voluntarily last year as our taxable sales were less than Dh375,000 per year. We recently went over the Dh375,000 limit, so do we need to register again as it would now be a mandatory registration? AC, Abu Dhabi

Once you are registered for VAT there is no need to register a second time, even if you are now required to do so. Once registered there is no difference in the ongoing VAT compliance procedure.

The only change is that if your cumulative annual taxable sales were to drop below the mandatory registration threshold and you are considering deregistration, then you must wait for 12 months from the date you registered voluntarily. That would not be the case if you registered mandatorily, whereby you could start deregistration as soon as your taxable sales fell below the mandatory registration limit.

Our VAT return periods are from January to March, April to June, July to September and October to December. I have a tax invoice dated June 5, 2019 that I have not previously accounted for. Can I claim the input VAT in my return due on January 28 2020? AI, Dubai

The relevant legislation to answer your query is contained in Article 55 of the Decree Law. That says you can claim the input VAT in the return covering the quarter in which you receive the invoice or in the subsequent quarter. What is important here is the date you receive the invoice, rather than the date of the invoice. Therefore, if you have evidence the invoice was received on or after July 1 last year, you can claim the input VAT in either the return you filed by October 28, covering the period July to September, or the return due to be filed by January 28 for the October to December period.

If you received the invoice before July 1 and have just failed to include it in either the July or October returns, then unfortunately you are now outside of the window for input tax recovery set out in the legislation.

Lisa Martin, a chartered accountant with more than 20 years of commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to