Article 46 of the GCC Common VAT Agreement establishes the principle of proportional deduction for Input Tax. Where a Taxable Person uses goods or services to make both Taxable Supplies and non-Taxable Supplies, the associated Input Tax cannot be fully recovered. Instead, deduction is permitted only for the proportion of Input Tax that is directly attributable to the Taxable Supplies. This ensures tax is only reclaimed on inputs used for taxable activities. The article explicitly grants each Member State the authority to determine the specific methodologies for calculating this deduction rate and to set conditions under which non-deductible Input Tax can be treated as zero.
Chapter 9 - Deduction of Tax
Article 46 - Proportional Deduction
If Input Tax is related to Goods and Services used to make Taxable Supplies and non-Taxable Supplies, then Input Tax cannot be deducted save within the limits of the proportion referable to the Taxable Supplies.
Each Member State may determine the methods of calculating the deduction rate and the conditions for treating the value of non-deductible Input Tax as zero.
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