The short answer to this question is – yes, you can capitalise office fit out costs in Dubai. However, the question now becomes how do you do this.

Today, we explore how companies that are based in the UAE can better their business with a workplace upgrade and claim depreciation on the work carried out under the Middle Eastern country’s tax policies.

Capital assets and how they work

When a company purchases capital assets, they are assets that are designated for long-term use. These assets are not intended for sale in the regular course of the business’s operation, but instead, are meant to be used or consumed internally. For instance, if a company purchases a computer that is designated to be used in its office, the computer is considered to be a capital asset. However, if the company purchases that same computer with the intention to sell it for a profit, it is then considered inventory.

The reason we mention this is because the distinction between a capital asset and inventory will make all the difference in whether your business can claim depreciation or not. Capitalising on an asset refers to the process of expensing the costs of attaining an asset over the life of the asset, rather than the period the expense was incurred.

Put simply, rather than listing the asset as an expense, the asset is added to the company’s balance sheet and depreciated over its useful life. Therefore, if your business wants to claim input VAT on an asset, it will need to be considered as a capital asset.

Capital Asset Scheme

Under UAE tax policies, input VAT can be recovered on the procurement of capital assets. However, the Capital Asset Scheme was put in place to regulate the input VAT recovery on the larger value of capital assets having long-term usage.

Under the Capital Assets Scheme, the input tax you’ll receive on capital assets is adjusted based on the actual use of the item during a specified time. In other terms, you are allowed to recover the full input VAT on capital assets in the first year, as long as it is intended to be used for making taxable supplies throughout the specified period of useful life, whether it be 5, 10 or more years.

However, if the capital assets are used for non-business purposes or making exempt supplies during the period of useful life, the taxpayer will need to reverse the proportionate input VAT to the extent of non-taxable usage.

Are all capital assets included under the Capital Assets Scheme?

Unfortunately, not all capital assets are considered under the UAE’s Capital Assets Scheme. A capital asset is designated as a single item of expenditure of the business that amounts to AED 5 million or more, excluding tax, on which VAT is payable and has an estimated useful life that is at least 5 to 10 years or longer. Those capital assets that are considered include:

• A whole or part of a building that can be used for at least 10 years.

• All other capital assets, other buildings or parts thereof, that has a useful life of at least 5 years.

Is an office fit out considered under the Capital Assets Scheme?

An office fit out should never be seen as an expense, as it is an investment in the future growth and success of your business. Thus, it is a capital asset in every sense of the word.

But does the UAE agree with this? – yes, yes they do.

Besides the bigger capital assets, like a building, if a business incurs expenditure that consists of smaller sums that collectively amount to AED 5 million or more, it will be treated as a single item of expenditure. This is only allowed when sums are staged payments for any of the following:

• Purchasing a building

• The construction of a building.

• The total sum incurred in relation to an extension, refurbishment, renewal, fit out, or any other work carried out to a building, except where there is a distinct break between any such work being undertaken, in which case they will be considered to be separate items of expenditure.

• Purchasing, constructing, assembling or installing any goods or immovable property where components are supplied separately for assembly.

Therefore, it is entirely possible to capitalise on the costs of your office fit out by reclaiming input VAT, as long as it aligns with the UAE’s Capital Assets Scheme.

Need help with your fit out?

To capitalise on the costs of your office fit out, you need to first install a fit out – and for that, you’ll require the services of a highly skilled professional contractor or interior designer who can carry out your project.

If you need help finding the perfect person for the job, then you’ve come to the right place.

Contractors.Direct offers a curated database of thoroughly vetted, quality contractors, interior designers and interior architects who can bring your vision to life, on time and on budget. Get in touch with us and we’ll be happy to connect you with the right people for the job.