VAT Treatment of Capital Assets: The Significance of Capital Asset Scheme for UAE Businesses

Businesses usually have a very busy time near the end of their tax year as they need to carry out the required end-of-the-year tax adjustments. And the Capital Asset Scheme is crucial for businesses that own capital during the tax adjustments. The UAE VAT Law allows the businesses to recover the input VAT paid on the procurement of capital assets and the Capital Asset Schemes is designed to regulate the input VAT recovery on the larger value of the capital assets that have long-term usage.

The Federal Law No. 8 of 2017 on VAT and the Executive Regulation on the same law define the Capital Assets and how to apply the Capital Asset Scheme. Consult with the best VAT consultants in Dubai to understand further about the Capital Assets Scheme.

To know about how the UAE VAT Law defines the Capital Assets and what the businesses need to be done, read on:

What are the Capital Assets Considered under Capital Assets Scheme?

As per Article 57 of the Executive Regulations of VAT Law, a Capital Asset is a single item of expenditure of the business that amounts to AED 5,000,000 or more excluding VAT. VAT should be payable on the asset and should have a useful life that is equal or longer than

• 10 years for a building or parts of the building
• 5 years for other Capital Assets

In some cases, the expenditure composed of smaller sums that collectively amount to AED 5,000,000 will be treated as a single item. This is applicable for:

1. Purchase of a building’
2. Construction of a building
3. Works were undertaken on a building such as extension, refurbishment, renewal. However, if there are distinct breaks between any such works it should be considered as separate items of expenditure
4. Purchase, construction, assembly or installation of any goods if the components are supplied separately for assembling

The taxable entities are recommended to seek assistance from the best tax agents in Dubai. The tax agents from prominent VAT consultancies in Dubai will help the businesses in ensuring VAT compliance.

 Adjustments Under the Capital Assets Scheme: What Does the VAT Law Say?

As per Article 58 of the Executive Regulations of VAT Law, the businesses should monitor a capital asset that is eligible for the Capital Asset Scheme and the input tax incurred should be adjusted for over either ten consecutive years for buildings or their parts or five straight years for other Capital Assets starting from the day in which the owner first uses the Capital Asset in question for his business.

However, a situation may arise when the Capital Asset is destroyed, sold, or otherwise disposed of before the end of the period referred to in Clause (1) of this Article. In such cases, the Capital Asset Scheme will expire for the Asset in the Tax year in which it was destroyed, sold or disposed of. The UAE VAT Law treats the Tax year in which the Capital Asset is Year 1 for the Capital Asset Scheme.

What Records Must be Kept under the Capital Asset Scheme?

Article 60 of the VAT Decree-Law mandates the businesses to keep a Capital Register related to all Capital Assets for a minimum of 10 years. The record-keeping requirement applies to all businesses owning assets that meet the definition of Capital Assets as per UAE VAT Law. This record-keeping requirement is valid irrespective of whether the taxable entities make exempt or non-business supplies. Businesses are advised to seek the expert advice of the best VAT consultants in Dubai to ensure that the records are kept as per the law for VAT purposes.

Consult with Best Tax Agents in Dubai, UAE

In the UAE taxable businesses that own Capital Assets can recover the input tax in the year of acquisition under the Capital Asset Scheme. However, due to the long useful life of large value assets, the taxable entities are required to monitor the usage of the capital assets for taxable purposes over time. Such taxable entities can enlist the services of the best VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) for ensuring compliance with the VAT Law during tax adjustments under the Capital Asset Scheme.

JCA is one of the best VAT consultants in Dubai with a dedicated team of VAT specialists and tax agents. Our tax agents in Dubai possess exceptional experience in all the major industries that apply the Capital Asset Scheme. JCA’s VAT Consultants in Dubai assist the businesses in calculating Capital Asset Scheme Adjustments and reviewing the suitability of Capital Asset Registers.