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Navigating the Capital Asset Scheme under VAT in UAE 2023: A Comprehensive Guide

In the ever-evolving landscape of taxation, businesses in the United Arab Emirates (UAE) are dealing with the intricacies of a system called Value Added Tax (VAT). One important part of VAT is the Capital Asset Scheme. We’ll explore what this scheme is, what’s important about it, and what businesses need to do to follow the rules.

What is the Capital Asset Scheme under VAT in UAE?

The Capital Asset Scheme is a part of VAT that deals with how companies handle capital assets like buildings, machines, and equipment. These items are important for a company’s financial health, and are subject to special VAT consideration

Shall all assets be subject to capital asset scheme?

Not all assets, but mostly the expensive and long-lasting ones in the current year need to follow the scheme.

•         For single big items that cost AED 5,000,000 or more (excluding Tax) 

imported or locally procured by the Taxable Person and which have useful life equal to or more than –

–         10 years in case of building

–         5 years for all capital assets other than buildings 

•         For smaller expenses in the current year that add up to AED 5,000,000 or more in staged payments,

–         For the purpose of a building

–         For the construction of a building

–         In relation to an extension, refurbishment, renewal, fitting out, or other work undertaken to a building, separate jobs count as one if there’s no clear gap between them; otherwise, they’re treated individually.

–         When you buy, build, or set up something with separate parts.

How the Capital Asset scheme work?

Under this scheme, if you buy something for your business and it’s solely for business use, you can get back the tax you paid when you bought it. But you need to keep an eye on it for 10 years if it’s a building, or 5 years if it’s something else. If, during this time, you start using it for non-business or tax-exempt reasons, you’ll have to give back some of the tax you got back earlier.

To find out the adjustment amount, do this calculation each year:

(Input Tax Paid for the capital asset / 10 years or 5 years) x (100% – taxable use % of capital asset)

Key Elements that define the Capital Asset Scheme:

Asset Thresholds: Businesses must check if their big purchases meet certain VAT thresholds. If they do, there are special rules to follow.

Input VAT Recovery: The scheme explains when and how to get back the VAT you paid when buying big stuff, like capital assets, following specific rules.

Adjustment Mechanism: The Capital Asset Scheme lets businesses fix any mistakes in their VAT claims, making sure they follow the rules correctly.

The Steps to Abide by the Capital Asset Scheme:

Identify Capital Assets:

Thoroughly assess your business’s assets to determine which fall under the category of capital assets like property, vehicles, and substantial machinery.

Evaluate Thresholds:

Figure out the worth of your big assets to see if they go beyond certain limits. This is important to know which assets the Capital Asset Scheme applies to.

Maintain Detailed Records: Keep meticulous records of capital asset transactions, including purchase invoices and documentation related to any adjustments made. This is vital for transparency and audit readiness.

Implement Adjustment Mechanism:

Know the adjustment mechanism, so you don’t get in trouble and follow the VAT regulations.

Considering all this you may require real help from a tax expert who really knows the system. A professional consultant makes it easier to understand the complex Capital Asset Scheme under VAT. They can be very helpful in the following ways:

  • Expert Guidance: A seasoned tax consultant with in-depth knowledge of UAE VAT regulations can provide expert guidance in implementing the Capital Asset Scheme.
  • Compliance Assurance: Tax consultants help businesses follow all rules and regulations, which mitigates the risk of non-compliance penalties.
  • Strategic Planning: Tax consultants can assist in developing a smart plan for dealing with big assets, getting back VAT, and paying less tax legally.

Catalyst Tax Consultants in Dubai: Your Catalyst for Financial Success

For businesses in the UAE dealing with the Capital Asset Scheme under VAT, Catalyst Tax Consultants in Dubai are reliable partners. Their team of experts specializes in tax solutions customized to each business, aiming to boost growth, save money, and ensure compliance in the ever-changing VAT environment of the UAE. With a strong track record, they’re dedicated to securing their clients’ financial success.

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