Fully recovered value added tax (VAT)
Value Added Tax can be fully recovered if it has been incurred on purchasing goods and services to make taxable supplies.
Partially recovered Value Added Tax (VAT)
A business that sells both taxable supplies and exempt supplies, cannot fully recover the value added tax input on buying the goods and services used to make such mixture of supplies.
Now we can discuss with an example, a real estate company that rent out buildings with both commercial means taxable and residential units (exempt) can only recover value added tax on the part of the purchases or expenses that are attributable to the commercial units.
At this time, the value added tax (VAT) input on any expenses applicable to the residential units would be considered as cost to the business. Here the businesses that sells mixed supplies, must determine the part of the input value added tax (VAT) that can be recovered, using the Federal Tax Authority standard or special methods of input tax apportionment.