VAT on residential property in the UAE

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VAT on residential property- uae

VAT on residential property- uae:The UAE implemented VAT on January 1, 2018. Its consequences are applicable to real estate supplies made in the UAE as a general consumption tax on the delivery of goods and services.

Property that consists of land or buildings is commonly referred to as real estate.it includes the following :

Any land or piece of land that may be used to produce rights, interests, or services.
Any construction, building, or technical work that is permanently attached to the land.
some devices or equipment that is permanently attached to the building, structure, or engineering work and is a permanent part of the land.

What is a supply of real estate?

A real estate supply is viewed as a supply of products. The transfer of ownership of real estate, or the right to use it, to another person is referred to as a supply of real estate.

According to the conditions, the time of supply regulations in Articles 25 and 26 of the UAE VAT Decree-Law shall be applied to real estate transactions.

It is also possible to provide services that are directly related to real estate. When the services are closely related to the real estate, or when the supply include the grant of a right to use the real estate, this will be the situation. The following are some examples of real estate-related services:

Any interest in or right over real land that is granted, assigned, or surrendered.
A personal right to be awarded any interest in or right over real estate; the grant, assignment, or surrender of a personal right to be granted any interest in or right over real estate.
The grant, assignment, or surrender of a land license or any other contractual right exercisable over or in connection to real estate, including the provision, lease, and rental of sleeping accommodations in a hotel or similar institution.
The provision of services by real estate specialists or agents.
A provision of services that includes the planning, coordination, and execution of construction, demolition, maintenance, conversion, or other comparable projects.

*Real estate related services*	*VAT Applicability*
A commercial property	Applicable 5%
A new residential property	0%
An existing residential property	Exempt
Vacant / Bare land	Exempt
Covered land	Applicable 5%
A initial supply of a charitable building	0%
A subsequent supply of charitable building	Applicable 5%
Property located within designated zone	OS (Out of Scope)

VAT on Residential buildings in the UAE / VAT on Residential property UAE

A residential structure is one that is planned and developed for human habitation.

Any structure or portion of a building that the individual inhabits, or that may be expected to be occupied, as their primary residence.
Residential housing for students or for school children.
Armed troops and police officers are housed here.
Orphanages, rest houses, and nursing facilities

A residential building is not;

Any structure that is not permanently affixed to the ground and may be relocated without causing damage
Any structure that serves as a hotel, motel, bed and breakfast, hospital, or other similar facility.
A serviced apartment is one that offers additional services in addition to providing lodging.
Any structure that has been built or modified without legal authorisation.

If a small portion of a building is used as an office or workspace by the occupants, if it includes garages and gardens that are used in conjunction with the property, or if it includes any other features that can be said to be part of the residential building, it is still considered a residential building.

First supply of a residential building -in UAE VAT

For VAT reasons, the initial delivery of a residential structure will be zero-rated. This indicates that the VAT paid on the expenses of the building’s first supply should be fully reclaimable.

The ‘first supply,’ which can be either a sale or a lease, must be made within three years after the building’s completion date. This approach applies regardless of who the building is delivered to (e.g., a registered client, a nonregistered customer, a connected party, etc.) as long as it is delivered within the specified term. A building’s completion date is usually the date on which it is certified as complete by an appropriately qualified party. If the building is occupied before this date, the date on which the building is occupied is considered the completion date.

First supply of a residential building

When a building is finished before January 1, 2018, but the first supply within three years of completion occurs after January 1, 2018, the supply is still eligible for zero-rating. It’s worth noting, though, that this provision only applies to the initial delivery of the property, not to the first supply after VAT was introduced.

Even if the building was completed within the last three years and was actually transferred or made available for use to the buyer or lessee prior to January 1, 2018, any subsequent supply after that date will not qualify as the first supply of the building. Any further deliveries of the building, whether by sale or lease, made within three years after its completion date are not zero-rated since they do not qualify as the building’s initial supply.

When a taxable person incurs the costs of constructing a residential building, all VAT paid on those costs is fully recoverable on the basis that the costs are related to the zero-rated first supply. Any subsequent supplies of the building by that taxable person have no bearing on the developer’s right to recover input tax paid before the first supply date (e.g., a subsequent lease, which would be exempt from tax after the initial supply). This means that under the capital assets scheme, the taxable person is not required to make any adjustments to its first or initial input vat recovery on development costs.

Subsequent supplies of residential buildings

Other than the initial delivery, the supply of a residential building is VAT-free. This covers situations where the property is given within three years of the building’s completion.

When a residential construction supplier pays VAT on expenses pertaining to a future supply, such as agent fees, or on costs relating to the general care and maintenance of the property after the initial supply, such costs are regarded to be directly related to the exempt supply of the building. As a result, the supplier will be unable to claim any VAT on these expenses through its VAT return.

VAT on Service charges in the UAE –Residential Buildings

In exchange for the care of the common portions of the property, a community master developer or building owner would frequently charge the owners or renters of units inside the community/building. On the premise that such charges reflect a fee for the services of maintaining and administering the community spaces, they will be liable to VAT at the regular rate. As such, they are not eligible for zero-rating or exemption because they do not reflect payment for the supply of a residential construction.

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