The UAE VAT Capital Assets Scheme allows for the adjustment of initially recovered input tax based on the actual use of capital assets over a specific period. A capital asset is defined as an expenditure of AED 5,000,000 or more with an estimated useful life of at least 10 years for buildings or 5 years for other assets, with exceptions for stock and smaller expenditures. Input VAT recovery for qualifying assets is governed by this scheme, while other assets are subject to standard input VAT recovery rules.

1. 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 accorda nce with the normal input
VAT recovery provisions of law. Aviaan Accounting