Capital assets are commercial assets for long-term usage. These are not intended for sale during the operation of the company but are utilized or consumed in the company. For example, if a firm buys a computer to use in its office, it is a capital asset, but it is deemed to be an inventory if another company buys the same computer for sale.
In the UAE VAT process, it is possible to recoup input VAT paid on capital assets. In UAE, VAT is meant to control the recovery of VAT input on the greater values of capital assets with long-term use under a unique scheme called the Capital Asset Scheme.
The originally recovered capital assets input VAT is modified on the basis of actual usage for a certain period of time in line with Capital Assets. In other words, if you are planning to use it throughout the time indicated to make a taxable supply, let’s say for 20 years, you may recover the full input VAT on capital assets in the first year. During the useful term of twenty years, the taxpayer must reverse the proportional input VAT to the amount of non-taxable use, if the capital assets are utilized for a non-profit purpose, or manufacturing exempt supply. Reversed VAT input should, while submitting VAT returns for the year, be recorded as a capital asset adjustment.
The aim of this scheme is to represent the use of the asset, whether it is for useful life for taxable or exempt purposes. In some situations, the intended use of the asset might vary over time and the VAT recovery input may not represent its usage in due course. Not all capital assets under the Capital Assets Scheme are evaluated. The UAE Executive Regulation clarifies the capital assets to be taken into account under this system.
Capital Assets Under this Scheme
Capital assets or business assets are a solitary investment item of a firm that costs, with exception of TAX, at least or more than five Crore AEDs. A firm shall pay VAT while purchasing such capital assets or business assets. For more than 5 to 10 years, a company can utilize such commercial assets. If an expenditure that consists of lesser amounts but together is up to five Crore AEDs or more, apart from capital assets, the cost is considered to be the only expenditure item for five Crore AEDs or more.
If your firm makes smaller payments, as shown in the following phases, it is considered a single spending entity:
- When your business pays for the purchase of a commercial property
- when your company pays for a retail space development
- The amount to be paid in respect of the refurbishment, renovation, restoration, extension of a part of the property and fitting purposes should be treated individually as expenses items.
- Also included as a distinct expense is the amount of money that your firm invests to purchase, build or install new material.
Our Service
AM Audit is one of UAE’s finest VAT consulting services and has an expert staff to help your firm learn more about the VAT recovery process input. Our experienced UAE VAT consulting team can help you comprehend and take into account the effect of VAT in all business phases. In the context of the capital investment scheme the assets described in the above section qualify. Only when the company has the right to collect value-added tax on inputs under this plan (VAT).
Profit Margin Scheme
The VATP002 system for VAT the UAE has recently clarified regarding profit margin scheme in the public domain. A taxable person normally charges 5% VAT on supplies that he does during normal business, however in the profit margin system “the tax is the difference between the amount paid for an item and the price sold for” (VAT on profit margin earned instead of the original selling price). A value-added tax plan that is only applicable to secondhand products when VAT has already been applied and paid for its original delivery is a profit margin scheme.
Goods Covered by the Profit Margin Scheme
- Secondhand goods — Tangible moving property, available for future use or repair.
- Art – Interest in history or archaeology.
- Collector’s products – Coins, stamps, currency – goods which are 50 years older.
Profit Margin Scheme Eligibility Conditions
For the aforementioned qualifying items, there are several requirements that must be met by a taxable person:
- The products must be bought from a taxable person who is not registered.
- The taxable person is supplying the products with the profit margin.
- Under Article 53 of Cabinet Decision No. 52 2017 UAE Vat, the input tax has not been recovered.
Maintaining Record
When a taxable person employs the profit margin arrangement, the following documents must be kept with regard to his supply.
- Register of stock where the information of items bought and sold under the profit margin.
- Invoices for purchases detailing the transaction information.
Example
ABC Company purchases from a member of the public, cell phones for AED 2000 and then sells them for AED 3000 to its customers. For his VAT registration the computation is as follows:
- Price for sale = 3000
- Buying price = 2000
- The margin of profit (3000-2000=1000)
- 1000 above is VAT included and the vat is as follows.
- Output VAT = 1000/21*1= 47.62
- Where the VAT entry is zero (0)
Conclusion
Both the above-explained schemes are quite unknown to a lot of people and can help many companies. For more information and detailed guidance/consultation, you can contact our experienced team at AM Audit.
