An effective office fit out that is both functional and aesthetically pleasing is essential for any business to have if they want a productive workforce and efficient company operations. However, fit out projects don’t come cheap and can be a costly expenditure.
Fortunately, an office fit out isn’t a mere expense – it is a capital asset. And attached to every capital asset is a useful life estimate.
You might be wondering what an office fit out useful life is – don’t worry, we have the answer.
What is meant by useful life?
In the corporate world, the term ‘useful life’ is often used to refer to the estimated number of years an asset acquired by a business is likely to remain in use and service for the purpose of cost-effective revenue regeneration.
Put in different terms, the useful life is the estimated lifespan of a depreciable fixed asset, during which, it is expected to contribute to company operations, and thereby increasing the bottom line of the business.
During the course of its useful life, an asset will be depreciated.
Is an office fit out an asset?
Believe it or not, an office fit out is considered a capital asset in Dubai and the rest of the UAE. This is because it is an investment that aids the growth and success of a business, and therefore is a valuable commodity that contributes to daily operations.
Office fit outs are often mistakenly seen as an expense, when it should be added to the company’s balance sheet and depreciated over its useful life. And under the UAE’s Capital Asset Scheme, an office fit out meets the requirements of a capital asset. However, it can only be considered a capital asset if it forms part of a number of smaller sums that collectively amount to AED 5 million or more.
What does this mean?
The UAE’s Capital Asset Scheme states that a capital asset must be a single item of expenditure to the amount of AED 5 million or more. However, it is unlikely that one single payment for an office fit out project will total to this amount. But if the fit out forms part of staged payments that meet the minimum threshold, then it can be considered as a capital asset.
For example, if a company purchases a building that is less than the stipulated amount, but carries out construction, refurbishment and fit outs to the building that when totalled together equals AED 5 million or more, then the project will be treated as one single item of expenditure.
Why does it matter?
Ask any business owner and they will tell you how important it is to have as many assets considered a capital asset rather than an expense.
Why?
It’s simple – the more capital assets you have, the more input VAT you can claim. This, in turn, makes it possible to capitalise on the costs of your office fit out via the UAE’s tax policies – as long as it aligns with the Capital Assets Scheme regulations.
And, as you might have already guessed, the longer the useful life of your capital asset or office fit out, the longer you can reclaim input VAT.
So, how do you calculate the useful life of an office fit out?
A misconception is that useful life refers to the length of time an asset will last. This is not an accurate assumption as there are many factors that can influence the lifespan of an asset. The useful life of identical assets varies by user, as it depends on the asset’s age, frequency of use, condition of the business environment and repair policy. Other influential factors include anticipated technological improvements, changes in laws and economic changes.
Therefore, there is no accurate prediction or calculation for the lifespan of an asset – however, we can estimate. The average life of an asset can be calculated by dividing the accumulated depreciation by the current year’s depreciation expense. Alternatively, there are many websites that offer useful life calculations or you can consider hiring a professional accountant to calculate it for you.
Investopedia notes that an office fit out, including furniture and fixtures, have an estimated useful lifespan of seven years.
Need help with your fit out?
If you’re in the market to install a new fit out or upgrade an existing one in your office, then you’ll need the help of a professional contractor or interior designer who can guide you with their expertise and deliver a successful project.
Fortunately, we know exactly where to find the perfect person for the job – right here!
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.
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