Recovery of VAT Paid on Capital Assets

In UAE VAT, the input VAT paid on procurement of capital assets is allowed to be recovered. However, in UAE VAT, a special scheme known as ‘Capital Asset Scheme’ is designed to regulate the input VAT recovery on the larger value of capital assets having long-term usage.

 

Under Capital Assets Scheme, the initially recovered Input VAT on capital assets is adjusted based on actual use during a specified time. In other words, you will be allowed to recover the full input VAT on capital assets in the first year, if it is intended to be used for making taxable supplies throughout the specified period, let’s say 10 years. During the useful life of 10 years, if the capital assets are used for the non-business purpose or for making exempt supplies, the taxpayer need to reverse the proportionate input VAT to the extent of non-taxable usage. The reversed input VAT should be reported as an adjustment towards capital assets while filing VAT returns for that year.

 

A Capital Asset is a single item of expenditure of the business amounting to AED 5,000,000 or more excluding Tax, on which VAT is payable and has estimated useful life equal to or longer than 5 or 10 years.

• 10 years in case of a building or a part thereof
• 5 years for all Capital Assets other than buildings or parts thereof