Capital Asset Scheme for Businesses in the UAE
05

May 2021

Capital assets form a huge part of a business. Without capital assets, it is almost impossible for a business to survive. The UAE government recently introduced Value Added Tax (VAT) at a rate of 5%. The UAE VAT law allows the businesses to reoccur the input VAT, which has been paid for the company’s procurement of Capital Assets. This is known as Capital Asset Scheme, which the UAE government has introduced.

Understanding the Capita Asset Scheme can be very important for a business. To get assistance in this matter, it is advised that the business should take the assistance of reputed professionals who will help the business during the time of need and will make the best of the resources and the situation available to the business.

Let us Understand more about The Capital Asset Scheme and how it will help businesses in the UAE.

Capital Asset Scheme in the UAE

The Capital Assets Scheme allows for the recovery of input tax for assets that are of larger value and can be used for a longer time. According to Article 57 of the Executive Regulations of VAT Law, the Capital asset is defined as an item that costs AED 5,000,000 or more to the business. This cost is exclusive of Value Added Tax (VAT), and this item needs to be a single item.

This asset scheme is applicable to only specific and defined capital assets. The requirement for such capital assets are:

  1. An item that cost AED 5,000,000 or more irrespective of taxes. It should be taken care that the asset should be a single item costing AED 5,000,000 or more.
  2. Any asset which is estimated to be used for a minimum of 5-10 years. Minimum life of 5 years in case the asset is a non-building asset. In case the asset is a building or a part of a building, then the asset’s minimum life should be ten years.

How does Capital Assets Scheme work?

A company needs to purchase a CAS Asset (Capital Assets Scheme Asset), then the input VAT on the purchase made can be recovered in the first year. In order to recover the input VAT, the asset needs to produce taxable supplies during a specified duration, such as ten years.

Suppose the assets of the business are used to make a non-business purchase, or the assets are used for the production of exempt supplies. In that case, the company is required to reverse the input VAT in proportion to the extent of the Non- table usage of the asset.

The Capital Asset Scheme’s primary mission is to note and account for the use of the asset in an accurate manner. In specific scenarios, the use of the asset can change over time, and due to this, the input VAT of the asset may not show its use over time.

Records which a Business must maintain under Capital Asset Scheme

According to Article 60 of the VAT Decree-law, a business is required to generate and maintain a Capital Register, consisting of the information about all the different capital assets of the company that have been kept for a duration of 10 years or more. All the businesses which have assets that fulfil the requirement as mentioned as per the UAE VAT Law need to maintain proper accounts of the assets. This requirement of maintaining the records is applicable to all the companies irrespective of the type of business supplies produced by the business, namely Exempt supplies or non-business supplies.

Suppose all the requirements which are mentioned fulfilled by the assets will only be considered for the Capital Asset Scheme. For the assets which do not fulfil the requirements for them, the input VAT will be determined according to the normal input VAT recovery provision of the law.

If you need to understand more about the Capital Asset Scheme, you can contact the experts at JAXA Chartered Accountants. JAXA is a reputed Chartered Accountants firm and will provide all the necessary information and services which are required by a business to function at their best. For more details about the services provided by JAXA, Contact Us. We will be happy to help.