What is the capital assets scheme for VAT?

Article 58 – Adjustments under the Capital Assets Scheme 42 1. A Capital Asset eligible for the Capital Asset Scheme shall be monitored and the Input Tax incurred shall be adjusted, as required in accordance with the provisions of this Article, over a period of either 10 (ten) consecutive years for buildings or parts thereof or 5 (five) consecutive years for other Capital Assets, commencing on the day on which the owner first uses the Capital Asset for the purposes of its Business. 2. Notwithstanding Clause 1 of this Article, if a Capital Asset is destroyed, sold, or otherwise disposed of before the end of the period referred to in Clause 1 of this Article, the Capital Asset Scheme shall cease in respect of the asset in the Tax year in which the asset was destroyed, sold or disposed of. 3. The Tax year in which the Capital Asset is acquired shall be treated as Year 1 for the purposes of the Capital Asset Scheme. 4. A Taxable Person shall keep a Capital Asset register and record therein the Input Tax incurred on the Capital Asset in Year 1 (represented by “W” in this Article) as well as details of any adjustments made to the Input Tax calculations under this Article. 5. The Input Tax recovered on the Capital Asset in Year 1 after any adjustment that may be due under Article 58 of the Decree-Law shall be recorded together with the percentage that gave rise to that recovery (referred to as “X” in this Article). 6. At the end of each year from Year 2 onwards, the Taxable Person shall calculate the percentage of Recoverable Tax for that Capital Asset for that year in accordance with Article 58 of the Decree-Law (referred to as “Q” in this Article). 7. If Q is not equal to X, the Taxable Person shall perform the calculation described in Clauses 8 to 11 of this Article, and shall make an adjustment to his Input Tax. 8. The Taxable Person shall calculate an amount (referred to as “R” in this Article) as: 42 Article amended as per Cabinet Decision No. 100 of 2024. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 49 a. One tenth of W multiplied by Q if the Capital Asset is a building or a part thereof; or b. One fifth of W multiplied by Q if the Capital Asset is not a building or a part thereof. 9. The Taxable Person shall calculate an amount (referred to as “Z” in this Article) as: a. One tenth of W multiplied by X if the Capital Asset is a building or a part thereof. b. One fifth of W multiplied by X if the Capital Asset is not a building or a part thereof. 10. Where R is more than Z, the Taxable Person shall increase his Input Tax by the difference. 11. Where R is less than Z, the Taxable Person shall reduce his Input Tax by the difference. 12. If the Capital Asset is disposed of by the Taxable Person in any year other than the final year or the Taxable Person deregistered for Tax and was required to account for tax on the asset as a Deemed Supply, the use to which the Capital Asset is deemed to have been put in any remaining years will be: a. For making Taxable Supplies, where it is disposed of by way of a supply or Deemed Supply that is subject to Tax or would be subject to Tax were it to be made in the State. b. For making Exempt Supplies, where it is disposed of by way of a supply that is exempt or would be exempt were it to be made in the State. c. Not in the course of conducting Business, where is it disposed of by way of a transaction that is not deemed as supply in the course of Business, unless it is deemed as a supply according to the meaning provided in Clause 2 of Article 7 of the Decree-Law. 13. Where a Taxable Person transfers his Capital Assets as part of a transfer of his Business or a part thereof according to Clause 2 of Article 7 of the Decree-Law, or to become a member of a Tax Group, or to leave a Tax Group and immediately become a Taxable Person on a stand-alone basis, then the Tax year then applying shall end on the day the Taxable Person transfers the Business or part of the Business, or becomes or ceases to be part of a Tax Group. On the next day, the next Tax year shall commence with the owner of the Capital Assets. 14. Where a Person who registers for Tax has already owned a Capital Asset for the purpose of his Business before registration for Tax, Year 1 shall be deemed to have commenced on the date of first use by that Person. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 50 15. For the purposes of Clauses 12 and 13 of this Article, any adjustments that may be required in respect of any such remaining years shall be included in the Tax Return relating to the Tax Period in which the Capital Asset is disposed of. 16. Any adjustments other than required under Clauses 12 and 13 of this Article shall be made in the Tax Period mentioned in Clause 9 of Article 55 of this Decision. 17. The first Tax year of an internally developed Capital Asset shall be the year in which that asset is started to be used. Title Thirteen – Tax Invoices and Tax Credit Notes

7. Input Tax recovery 7.1. General principles An educational institution is entitled to recover Input Tax incurred on the purchase of Goods and Services to the extent that the Goods and Services are used, or intended to be used for making Taxable Supplies or supplies outside the UAE which would have been considered taxable had they been made in the UAE.23 Input Tax that is directly related to an Exempt Supply or a non-business activity is not recoverable.24 In addition, VAT is specifically blocked from recovery on certain costs, for example entertainment expenses.25 Where an educational institution makes Taxable and Exempt and/or non-business supplies, VAT recovery should be calculated by using an Input Tax apportionment method. Further information on Input Tax apportionment can obtained from the VAT Input Tax Apportionment Guide (VATGIT1). Where an educational institution receives non-business income, for example grant funding, VAT incurred on related costs will be irrecoverable. For example, an educational institution incurs legal costs on an endowment. Assuming the endowment is a freely given donation that is outside the scope of VAT, the VAT incurred on the related legal costs will be irrecoverable. For completeness, Input Tax recovery of Goods and Services acquired using the grant funding follows the normal rules. Where grant funding is used to purchase laboratory equipment for student use, the VAT will be recoverable if the educational institution makes a Taxable Supply of education. Where an educational institution acquires or imports a Capital Asset, it should consider its obligations under the Capital Assets Scheme. For purposes of the Capital Assets Scheme, a Capital Asset means a single item or combination of certain items where the Business has incurred expenditure of AED 5,000,000 or more (excluding VAT) on which VAT is payable and which has an estimated useful life equal to or longer than ten years (or part thereof) for buildings, or five years for all other Capital Assets.26 The use of the Capital Assets has to be monitored and adjusted over the period.27 23 Article 54 of the VAT Law. 24 Article 55(6)(b) of the VAT Executive Regulation. 25 Article 53 of the VAT Executive Regulation. 26 Article 57(1) of the VAT Executive Regulation. 27 Article 58 of the VAT Executive Regulation. VAT Guide | Education | VATGED1 23

Article 60 - Capital Assets Scheme 1. 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. 2. A Taxable Person shall keep the records related to Capital Assets for at least 10 years. 3. The Executive Regulation of this Decree-Law shall specify the following: Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 29 a. Capital Assets subject to the provisions of this Decree-Law and their estimated useful life. b. The method of adjusting Capital Assets and the periods for which adjustments should be made. c. Instances where the period for keeping records of Capital Asset records is extended. Chapter Four – Adjustment of Tax after the Supply Date