With the significant advancement in technology, in today’s time, every time-consuming task can be accomplished in a smart and efficient way. In UAE, a company can recover value-added input tax (VAT) that was paid on procuring capital assets.

What are Capital Aassets?

Business assets are known as capital assets. A company makes investment in capital assets for long-term use. Such assets are not obtained for selling purpose in the daily course of the company’s operation. Instead, the sole reason for investing in business assets or capital assets is due to productive business operation purpose.

To simplify the entire above-discussed paragraph, read on the following example; the procurement of capital assets means when a company invests money in purchasing desktops and laptops for long-term usage purpose. It will only be regarded as inventory when another company buys the same set of desktops and laptops for selling purpose.

The Structure of Capital Assets Scheme

Capital Assets Scheme is one-of-a-kind of mechanism in which previously recovered input value-added tax (VAT) on procurement of capital assets is altered on actual usage for a fixed particular period of 5 or 10 years. In the initial year, based on the usage of capital assets, a company is allowed to recover the input VAT on business assets. If things are used in a different way, and changes are made, then a company needs to fine-tune for input VAT recovery. Depending on the changes in the usage of the capital assets, you may need to pay additional VAT or get additional VAT from the FTA.

However, under the Capital Assets Scheme, not all capital assets are taken into consideration. In UAE, the Executive regulation advisory clarifies on the types of capital assets that one should take into consideration under the Capital Assets Scheme.

Types of Capital Assets that Qualify under the Scheme

A capital asset or business asset is a sole item of investment of a company that costs at least or more than 5 Crore AED, excluding TAX amount. On procurement of such type of capital asset or business asset, a company requires to pay VAT. A business can use such business asset for or more than 5 to 10 years.

Besides capital assets, if a company, which you own, requires making an expenditure that comprises smaller amounts yet collectively reaches the amount to 5 Crore AED or more than it, then the cost will be regarded as a sole item of expenditure of 5 Crore AED or above the amount. When your company make the smaller payments at different stages, like the following, it will be regarded as a sole entity of expenditure:

  • When your company makes a payment for buying a commercial property
  • When your business makes a payment for the construction of a retail space
  • The sum that you are required to pay for the renewal, refurbishing, renovation, extension of a part within the property and fitting purposes are considered to be items of expenditure separately.
  • The amount of money that your company invests for purchasing, constructing or installing new materials are also taken into consideration as a separate expenditure.

GCC Filings is one of the best VAT consulting in UAE that boasts of a team of skilled professionals who can help your company to be more aware of the input VAT recovery procedure. Our dedicated VAT advisory team in UAE can help you to understand and consider the impact of the value-added tax through the different stages of business.

The assets that are discussed in the section above, qualify under the Capital Assets Scheme. Only when such business assets qualify under this scheme, a business gets the authorization to recover input value-added tax (VAT).

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