Your Complete Guide to Capital Asset Scheme UAE VAT

Understanding the capital asset scheme in UAE VAT is extremely important to survive and suffice in the commercial landscape of Dubai. However, unfortunately, many people are still unaware of it. The same is why we have formed a guide which talks about all the things you must know in this regard. So, without wasting even a single minute more in discussion, let us dig right into the content. 

Understanding the Capital Asset Scheme in UAE VAT

The capital asset scheme helps businesses track VAT paid on big, long-term assets and adjust input tax if usage changes over time.

• It applies to high-value business assets used for several years.
• Ensures fair recovery of VAT paid on purchase.
• Prevents over-claiming or under-claiming VAT.
• Follows clear rules set by the UAE Federal Tax Authority (FTA).

Why the Capital Asset Scheme Exists

This scheme ensures that VAT recovery matches how assets are actually used over time.

• Keeps VAT claims accurate and fair.
• Avoids tax advantages from changes in asset use.
• Aligns with international VAT best practices.
• Helps maintain transparency in tax reporting.

Assets Covered Under the Scheme

Not all assets fall under this rule; only certain high-value ones are included.

• Buildings and real estate used for business.
• Heavy machinery and industrial equipment.
• High-value commercial property.
• Long-term assets used for more than one year.

The VAT Value Threshold

The scheme applies only if the asset’s value crosses a set limit.

• Minimum value is AED 5 million or more.
• The value includes VAT paid on purchase.
• Only eligible capital assets can be included.
• Smaller assets are excluded from the scheme.

Adjustment Period for Assets

VAT adjustments are made over a set number of years, called the adjustment period.

• 10 years for buildings and property.
• 5 years for other capital assets.
• Adjustments ensure VAT matches business use.
• Changes are made if asset use shifts between taxable and exempt activities.

How VAT Recovery Works

VAT recovery is based on how much the asset is used for taxable business purposes.

• If use changes, VAT claimed is adjusted.
• Adjustments can be increases or decreases.
• The process ensures fair and correct VAT returns.
• Detailed records must be kept for each asset.

When Adjustments Are Needed

Adjustments happen if the asset’s use changes after purchase.

• Change from taxable use to exempt use.
• Change from exempt use to taxable use.
• Mixed-use assets needing proportional VAT recovery.
• Sale or disposal of the asset before the adjustment period ends.

Record-Keeping Requirements

Good records are key to following the rules correctly.

• Keep invoices, receipts, and contracts.
• Track usage percentage every year.
• Maintain adjustment calculations.
• Store records for at least 10 years.

Reporting to the Federal Tax Authority

All adjustments must be reported clearly to the FTA.

• Include adjustments in VAT returns.
• Use the correct reporting period.
• Follow FTA filing guidelines.
• Avoid mistakes that may lead to penalties.

Penalties for Non-Compliance

Not following the scheme’s rules can lead to fines.

• Monetary penalties from the FTA.
• Loss of right to recover VAT.
• Extra audits and investigations.
• Damaged business credibility.

Tips for Businesses to Stay Compliant

Simple steps can help businesses avoid VAT issues.

• Keep accurate and updated records.
• Review asset usage yearly.
• Train staff on VAT rules.
• Consult a tax expert if unsure.

Common Mistakes to Avoid

Avoiding common errors can save time and money.

• Forgetting to track asset usage changes.
• Not keeping full documentation.
• Missing the adjustment period deadlines.
• Applying the scheme to non-eligible assets.

How a Tax Consultant Can Help

Professionals can make the process smoother and safer.

• Offer guidance on asset eligibility.
• Handle VAT calculations and adjustments.
• Ensure timely and accurate FTA filings.
• Reduce the risk of penalties.

Final Thoughts

The capital asset scheme may seem complex. However, trust really us as it is vital for correct VAT handling. By understanding the rules, tracking usage, and keeping proper records, businesses can stay compliant and avoid costly mistakes. The same is why we have formed the guide above which talks about everything essential. So, make sure to read till the very end.