UAE VAT Capital Assets Scheme

Capital Assets Scheme is a scheme whereby the initially recovered Input Tax is adjusted based on the actual use during a specific period. If a Capital Asset is supplied or imported by a Taxable Person, the latter shall assess the period of use of such asset and make the necessary adjustments to the Input Tax paid pursuant to the Capital Assets Scheme.

Assets that are considered capital assets are:
1) A Capital Asset is a single item of expenditure of the Business amounting to AED 5,000,000 or more excluding Tax, on which Tax is payable and which has estimated useful life equal or longer than:
a) 10 years in case of a building or a part thereof.
b) 5 years for all Capital Assets other than buildings or parts thereof.
2) Items of stock, which are for resale, shall not be treated as Capital Assets.
3) Expenditure consisting of smaller sums which collectively amount to AED 5,000,000 or more shall be treated as a single item of expenditure of AED 5,000,000 or more for the purposes of this Article where the sums are staged payments for any of the following:
a) For the purchase of a building.
b) For the construction of a building.
c) In relation to an extension, refurbishment, renewal, fitting out, or other work undertaken to a building, except that where there is a distinct break between any such works being undertaken they shall be taken to be separate items of expenditure.
d) For the purchase, construction, assembly or installation of any goods or immovable property where components are supplied separately for assembly.

Example: Ali Traders, a wholesaler of hardware products, purchased a commercial property and paid VAT of 300,000 AED in the month of January, 2018. The intended use of the commercial property is for the purpose of carrying on the business of supplying hardware products. Ali Traders can recover 100% of Input VAT paid on the purchase of commercial property in a first year i.e. AED 300,000 as Input VAT in 2018 itself. This is because the intended use of the commercial building by Ali Traders is to make only taxable supplies.

Assets which qualify the above conditions will be considered under Capital Assets Scheme and input VAT recovery will be regulated by this scheme. For other capital assets, input VAT recovery will be determined in accordance with the normal input VAT recovery provisions of law.