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With the introduction of VAT law in the Dubai, a standard rate of 5% VAT is charged on all goods and services. Whenever a new business is started or during the expansion of business, addition of capital assets is required. Capital asset is a huge investment and paying VAT on the same increases the budget. But the concept of input tax as applicable on goods is applicable on capital assets as well. So, let’s understand the capital asset scheme under UAE VAT law.
Asset which qualifies for claiming of VAT input in the capital asset scheme are:
- Buildings or part thereof of value> 5,000,000 AED & useful life>10 years.
- Other capital Assets or part thereof of value> 5,000,000 AED & useful life> 5 years.
Following conditions must be satisfied in order to claim the input tax paid on capital Asset,
- A detailed invoice of the capital asset purchased.
- The asset must be a qualifying asset under UAE VAT Law.
- The asset must be used for business purpose only.
- Must satisfy other conditions under Capital Asset scheme.
The input VAT eligible for the capital asset has to be calculated annually by using the below stated formula:
[(Total VAT paid for capital asset)/10 or 5 years]*[100%-Used % of capital Asset}
Under this scheme, the input tax paid on the procurement of the capital assets shall be recovered immediately upon incurring such expenditure, if the asset is used or intended to be used 100% for the business purpose.
The year, in which the asset is put to non-business or exempt purposes fully or partially, the originally recovered input tax credit shall be reversed to the extent to which it is put for non-business purposes.
The reversal working is similar to calculation of input Vat, just the amount reversed is being added back and decrease the input tax.