My business makes both taxable and exempt supplies — how do I recover input VAT?

If your company provides both taxable supplies (at 5%) and, at the same time, VAT-exempt activity (certain residential leasing or specified financial services, for example), you're in a "partial exemption" position. The problem is your shared overhead — office rent, utility bills, general advisory fees — can't be cleanly attributed to either the taxable or the exempt side, so you're not entitled to recover all the input tax on it as-is.

The standard method the Federal Tax Authority applies calculates a recovery percentage by dividing the value of your taxable supplies by total supplies (taxable plus exempt), then applies that percentage only to the "residual" input tax you can't directly attribute to one activity or the other. If the standard method doesn't fairly reflect the nature of your business, you can — after a certain period following registration — apply to the FTA to use an alternative method (such as one based on transaction count or floor space, depending on the activity), which then stays in force for a set period before needing renewal.

Whichever method applies, at the end of every tax year you need to perform an annual wash-up: comparing the estimated recovery percentage you used through the year against the actual percentage based on full-year figures, and correcting any difference. Skipping this annual adjustment is one of the most common issues that surfaces in FTA reviews. RASEEKH can help determine the right method for your activity and apply the annual wash-up accurately.