Value Added Tax (VAT) in the UAE allows businesses and specific eligible persons to recover VAT incurred on qualifying expenses. While most VAT recovery happens through standard input tax recovery in VAT returns, certain special refund and relief mechanisms are available under UAE VAT law.

It is important to note that VAT refunds apply only in specific cases where input tax cannot be recovered through standard VAT return mechanisms and are subject to strict eligibility conditions.

This article explains the VAT Refunds & Reliefs framework, focusing on:

• Cabinet Decision No. 25 of 2018 (Effective 1 June 2018)
• Refund of VAT Incurred on the Construction and Operation of Mosques (VATGRM1 – November 2022)

Additionally, the UAE VAT framework includes other refund schemes such as refunds for foreign businesses and tourists, which, although not covered in detail here, form part of the broader VAT refund ecosystem.

Understanding these provisions is crucial for UAE businesses, donors, operators, and entities involved in special-purpose activities that qualify for VAT refunds.

Understanding VAT Refunds & Reliefs in the UAE

VAT refunds and reliefs are mechanisms designed to ensure that VAT does not become an unnecessary financial burden on specific sectors, projects, or approved activities.

These mechanisms generally apply in situations involving non-taxable persons, blocked input tax scenarios, or exceptional cases where normal recovery through VAT returns is not possible.

These schemes aim to:

• Encourage public-benefit projects
• Support religious infrastructure
• Improve compliance with VAT regulations
• Facilitate efficient recovery of eligible VAT

In addition to standard input tax recovery, special refund mechanisms exist for designated persons and activities listed in Cabinet Decisions.

It is important to distinguish between VAT refund mechanisms and other VAT treatments such as reverse charge mechanisms or liability-shifting provisions, which do not constitute refunds but instead change how VAT is accounted for.

Cabinet Decision No. 25 of 2018: Key Overview

Cabinet Decision No. 25 of 2018, issued on 22 May 2018 and effective from 1 June 2018, introduced special VAT provisions applicable to specific sectors and taxable supplies.

It is important to clarify that this decision does not introduce a VAT refund or relief mechanism, but rather a special tax accounting treatment under the Reverse Charge Mechanism (RCM).

Purpose of the Decision

The decision establishes special VAT treatment rules, including scenarios where:

• VAT liability shifts to the recipient rather than the supplier
• Special accounting mechanisms apply
• Compliance responsibilities are transferred to designated parties

 

Under this decision:

• When certain items (such as gold or diamonds) are supplied between registered persons for resale or manufacturing, the recipient is responsible for calculating VAT, rather than the supplier.

This mechanism ensures VAT neutrality and prevents cash flow blockage, but should not be confused with VAT refund schemes.

Key Compliance Requirements

Businesses affected by this decision must:

• Confirm the VAT registration status of the recipient
• Maintain written confirmation of intended resale or manufacturing
• Ensure VAT is accounted for correctly in VAT returns
• Maintain accurate supporting documentation

 

Failure to comply may result in:

• VAT liabilities
• Administrative penalties
• Increased audit risks

Accordingly, this decision is better understood as a special VAT mechanism rather than a refund or relief provision within the UAE VAT framework.

VAT Refund on Construction and Operation of Mosques (VATGRM1 – November 2022)

One of the most significant VAT relief mechanisms in the UAE applies to mosque construction and operation.

Because mosques are generally not operated as commercial businesses, VAT incurred during construction and operation cannot typically be recovered through standard VAT return mechanisms.

To address this, the UAE government introduced a special VAT refund scheme.

Who Is Eligible for Mosque VAT Refunds?

Eligible applicants include:

1. Donors Constructing Mosques

A donor may claim VAT refunds if:

• VAT was incurred on goods and services directly related to mosque construction
• The construction was approved by the competent authority
• A Mosque Operation Commencement Certificate is obtained
• The mosque is delivered to an approved authority or operated according to approval requirements

Only costs that have a clear and direct link to the construction of the mosque are eligible; indirect or unrelated expenses may be rejected by the FTA.

2. Mosque Operators

Operators responsible for running mosques may claim VAT refunds if:

• VAT was incurred on goods or services directly linked to the operation and maintenance
• The mosque is officially registered with the competent authority
• A written permit exists authorizing operation

 

Refunds do not apply to:

• Commercial annexes
• Non-religious facilities
• Non-operational activities

This ensures that VAT refunds remain strictly limited to religious and non-commercial functions.

What Is Considered Mosque Construction?

The VATGRM1 guide defines mosque construction broadly.

It includes:

• Physical construction activities
• Furnishing and equipping the mosque
• Installation of devices and utilities
• Procurement of necessary equipment
• Pre-operational preparation works

However, eligibility is restricted to expenses that are directly required for the mosque to become operational; not all pre-operational costs automatically qualify.

Eligible VAT Expenses

Examples of recoverable VAT expenses include:

Construction Phase

• Building materials
• Engineering services
• Architectural design services
• Equipment procurement
• Interior furnishing
• Installation services

Operational Phase

• Maintenance services
• Cleaning services
• Utility-related services
• Repairs and replacements

All such expenses must demonstrate a clear and direct connection to the mosque’s intended religious use to qualify for refund eligibility.

Refund Application Process

VAT refund claims for mosque-related expenses follow a structured process.

Phase 1: Initial Application

Applicants must:

1. Register on the EmaraTax platform
2. Submit refund application details
3. Upload supporting documentation

Typical documents include:

• Emirates ID or passport
• Completion certificate
• Operation certificate
• Bank details
• Invoice records

Phase 2: Verification

If preliminarily approved:

• A verification body reviews documents
• Additional records may be requested
• Final approval is issued

Once approved:

• Refund processing may take approximately 15 business days after final approval, subject to FTA verification and completeness of documentation.

Refund Period and Eligibility Timeline

Eligible VAT may be refunded:

• From 1 January 2018 onwards
• Provided all eligibility requirements are met

VAT is only recoverable for expenses incurred on or after 1 January 2018, being the date of VAT implementation in the UAE, subject to meeting all applicable conditions.

Record Keeping Requirements

Applicants must maintain:

• Original tax invoices
• Payment confirmations
• Project approvals
• Operational permits
• Construction records
• VAT refund application documents

Maintaining accurate records is critical to:

• Avoid rejection of claims
• Support audit compliance
• Reduce refund delays

Importance of VAT Refund Compliance for UAE Businesses

Although mosque-related VAT refunds are highly specialised, the principles behind them illustrate broader VAT compliance practices.

These schemes particularly apply to entities that are not making taxable supplies and therefore cannot recover input tax through standard VAT return mechanisms.

Businesses should:

• Understand eligibility requirements
• Maintain proper documentation
• Review transactions regularly
• Seek professional VAT advisory support

Proper VAT refund planning improves:

• Cash flow efficiency
• Compliance accuracy
• Risk management

Common Challenges in VAT Refund Applications

Businesses and entities often face:

• Missing documentation
• Incorrect expense classification
• Incomplete refund submissions
• Delays in verification
• Misinterpretation of eligibility rules

Professional support significantly reduces these risks.

Best Practices for Successful VAT Refund Claims

To improve refund success rates:

• Maintain accurate tax invoices
• Verify supplier VAT registration
• Track eligible expenses
• Submit timely refund applications
• Conduct periodic VAT reviews
• Consult VAT specialists when needed

Key Takeaways

• UAE VAT includes special refund schemes for designated sectors and activities.
• Cabinet Decision No. 25 of 2018 introduced specialised VAT treatment rules applicable to specific industries.
• VATGRM1 (November 2022) provides a structured VAT refund mechanism for mosque construction and operation.
• Refund eligibility depends on proper approvals, documentation, and compliance.
• Professional VAT advisory services significantly improve refund success and reduce compliance risks.

How German Fintax Consultancy Supports VAT Refunds & Reliefs

At German Fintax Consultancy, we provide expert support for VAT refunds and relief mechanisms in the UAE.

Our services include:

• VAT refund eligibility review
• Documentation preparation
• Refund application filing
• VAT audit support
• Compliance advisory
• Dispute resolution support

We help businesses and organisations maximise legitimate VAT recovery while ensuring full regulatory compliance.

Frequently Asked Questions (FAQs)

1. What is a VAT refund under UAE VAT law?

A VAT refund allows eligible persons to recover VAT incurred on qualifying expenses when they cannot recover it through standard VAT return mechanisms.

2. Who can claim VAT refunds for mosque construction?

Donors who incur VAT on mosque construction expenses and meet approval requirements from the competent authority may apply for refunds.

3. Can VAT be refunded for mosque operational expenses?

Yes. Operators authorised to manage mosques may claim VAT refunds on operational expenses directly related to mosque maintenance.

4. What documents are required for VAT refund applications?

Typical documents include:

• Tax invoices
• Payment proof
• Completion certificate
• Operation permit
• Bank details
• Project approvals

5. How long does it take to receive VAT refunds?

Once approved, VAT refunds may take approximately 15 business days after final approval, depending on verification requirements and FTA processing timelines.

6. Can VAT incurred before 2018 be refunded?

Refund eligibility generally applies to VAT incurred from 1 January 2018 onward, subject to meeting applicable conditions.

7. Why should businesses seek professional VAT support?

VAT refund procedures involve complex documentation and regulatory compliance. Professional advisors ensure:

• Accurate submissions
• Faster processing
• Reduced risk of rejection