Capital assets scheme: what it means in UAE tax.

What capital assets scheme means

Also called: CAS, Capital asset scheme.

The capital assets scheme is a VAT adjustment mechanism for large, long-lived business assets. When a registered business buys or imports a qualifying asset, it recovers input tax based on how it uses the asset in the first year. The scheme then requires it to check that use every year for the rest of the adjustment period and to correct the recovery if the balance between taxable and exempt use changes.

Under the Executive Regulation, a capital asset is a business asset costing AED 5,000,000 or more before VAT, on which VAT is payable, with an expected useful life of at least 10 years for a building or part of one, or 5 years for any other asset. Stock held for resale is excluded. Staged payments for buying, building or fitting out a building are added together when testing the threshold.

Most SMEs will never reach the threshold, but a company that buys its own premises, a property developer or a business with heavy plant can. The risk is quiet over-recovery: claiming all the VAT in Year 1 and later moving part of the asset into exempt use, such as residential letting, without repaying the difference.

How it works

• The adjustment period is 10 consecutive years for a building and 5 for other capital assets, starting on the day the owner first uses the asset in the business. The tax year of acquisition counts as Year 1.
• The business keeps a capital asset register showing the VAT incurred in Year 1 (W) and the recovery percentage it used in Year 1 (X).
• At the end of each later year it works out that year's recovery percentage (Q). If Q differs from X, it compares one tenth of W (buildings) or one fifth of W (other assets) multiplied by Q with the same fraction multiplied by X, and increases or reduces input tax by the difference.
• If the asset is sold, destroyed or otherwise disposed of early, the scheme stops in that tax year, and the remaining years are treated according to how the asset left the business.
• Article 60 of the VAT law requires records for capital assets to be kept for at least 10 years.

Worked example

A trading company buys a commercial building for AED 6,000,000 plus VAT. It uses the whole building for taxable business in Year 1 and recovers all the VAT. In Year 3 it lets part of the building to residential tenants, an exempt supply, so taxable use for the building falls to 70%.

Building cost before VAT	AED 6,000,000
VAT paid on the purchase (W)	AED 300,000
Input tax recovered in Year 1 at 100% taxable use	AED 300,000
One tenth of W	AED 30,000
One tenth of W at Year 3 taxable use of 70% (R)	AED 21,000
One tenth of W at Year 1 recovery of 100% (Z)	AED 30,000
Input tax to reduce for Year 3 (Z less R)	AED 9,000

The adjustment is made one year at a time, so each later year at 70% taxable use would bring a further AED 9,000 reduction.

Common mistakes

• Treating every asset over AED 5,000,000 as in scope without checking the useful life test, or forgetting that staged payments on a building are added together.
• Recovering Year 1 VAT in full and never revisiting it when part of the asset moves to exempt or non-business use.
• Not keeping a capital asset register, which leaves no evidence for the yearly comparison if the FTA audits the claim.

The law

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 60 (Capital Assets Scheme)
• Cabinet Decision No. 52 of 2017 (VAT Executive Regulation), Article 57 (Assets Considered Capital Assets) and Article 58 (Adjustments under the Capital Assets Scheme)
• Cabinet Decision No. 149 of 2026, Article 1 (new wording of Clause 1 of Article 57, effective 1 October 2026)

Frequently asked questions

Does the scheme apply to a fleet of vehicles worth AED 2 million in total?

Not as a single item. The threshold is AED 5,000,000 per business asset before VAT. The rule that adds smaller sums together is limited to staged payments for buildings and for goods or property assembled from separately supplied components.

What changes on 1 October 2026?

Cabinet Decision No. 149 of 2026 replaces the wording of Clause 1 of Article 57 from that date. The new text describes a capital asset as a business asset rather than a single item of expenditure, but keeps the AED 5,000,000 threshold and the 10 year and 5 year useful life tests.

Related terms

Input tax · Exempt supply · Taxable supply · VAT tax period. See every term in the UAE tax glossary.

For the full picture, read our guide: Corporate Tax and VAT for Real Estate Businesses in the UAE.

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