VAT on Sale of Fixed Assets in UAE
In this article we are going to discuss in detail about how to charge VAT on sale of Fixed Assets in UAE?
Before going into detail let us understand what is Asset or Capital Asset as per the VAT law in UAE?
Federal Decree-Law No. (8) Of 2017 on Value added tax define Capital Asset as under:
“Business assets designated for long-term use”
Further Executive Regulations of the Federal Decree-Law No. (8) Of 2017 further elaborates capital assets as:
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
Now Going go the Question under discussion how to charge vat on sale of fixed Assets in UAE?
Based on the above definitions if assets qualifies as Capital Asset in VAT Law then :
Buyer or purchaser will treat the Asset under Capital Asset Scheme that is defined in Federal Decree-Law No. (8) Of 2017 as:
“A scheme whereby the initially recovered Input Tax is adjusted based on the actual use during a specific period”
Input tax that is related to the purchase of that Assets should be claimed over the period of use and not exactly in the quarter of purchase.
Seller will simply deposit the amount received as VAT to the Federal Tax Authority in the next return due.
Summary on VAT on Sale of Fixed Asset in UAE:
In Simple words Capital Asset in VAT law is only that Asset that is bought for at least Aed 5,000,000 and has useful life of 10 years in case of building and 5 years in case of Capital Assets other then Building.
If Assets qualify the above criteria then buyer needs to claim input based on the useful life of Asset and not in the month of purchase as is the practice of normal expenses. Seller will deposit all the VAT received to the Federal Tax Authority in the next return due.