Real Estate:
Real Estate is generally considered to be property consisting of Land or Buildings and includes:
- Any area of land over which rights or interests or services can be created;
- Any Building, Structure or Engineering work permanently attached to the land;
- Any fixture or equipment which makes up a permanent part of the land or is permanently attached to the building, structure or Engineering work.
Residential Buildings:
A residential building is a building which is intended or designed for human consumption. This includes;
- Any building or part of a building that the person occupies, that it can be foreseen that a person will occupy, as their principal place of residence;
- Residential accommodation for students or school pupils;
- Residential accommodation for armed forces and police;
- Orphanages, nursing homes and rest homes.
A residential building is not:
- Any place that is not a building fixed to the ground and which can be moved without being damaged;
- Any building that is used as a hotel, motel, bed, & breakfast establishment, or hospital or the like;
- A serviced apartment for which services in addition to the supply of accommodation are provided;
- Any building constructed or converted without lawful authority.
A building is still considered to be a residential building if a small portion of it is used as an office or workspace by the occupants, if it includes garages and gardens used in conjunction with the property, or if it includes any other features that may be said to comprise part of the residential building.
First Supply – Zero rated:
The first supply of Residential Property will be Zero rated for VAT purposes. This means that the VAT incurred on the costs relating to the first supply of the building should be recoverable in full. Zero rated supplies means that those supplies are charged with 0% VAT for Real Estate in UAE . This means that the Purchaser need not pay any VAT on those goods or services.
The first supply means Supply of building by Sale or Lease made within 3 years from the date of Completion of construction or the date on which the building is occupied, whichever is earlier.
In this case, date of Completion can be regarded as the date on which the building is certified as completed by the Appropriate authority.
Any further supplies made within 3 years of Completion will not be regarded as first supply and hence they will not be treated as Zero-rated supplies. Hence the provisions of Subsequent supplies will apply here. That is, such further supplies will be treated as Exempt supplies.
Subsequent Supplies – Exempted:
Subsequent supplies of Residential Building includes:
- Any further supply made after first supply, within 3 years from the date of Completion of construction
- Any supply made after the prescribed time frame of 3 years
This means that any supply of residential buildings other than the first supply will be considered as subsequent supply and that will be exempted from tax.
The cost incurred on such subsequent supply of Residential building like agent fees, maintenance costs incurred after the first supply will be considered as having direct nexus with the Subsequent supply (Which is exempted). Hence the Supplier will not be able to recover any VAT on such costs.
Buildings used for both Commercial & Residential purpose:
Where any Building is used for both Residential & commercial purpose, the provisions will be applied by separating the Building into residential and commercial.
Certain Special Cases:
- For maintaining the Communal areas of the property, sometimes the owners may make charges for such maintenance. Such charges will be subject to VAT for Real Estate in UAE at 5%, on the basis that they represent a charge for the services of maintaining and running the communal areas. Such charges do not represent the consideration for supply of Residential building and the question of deciding that as zero-rated or exempt supply becomes irrelevant.
- Where any residential building is supplied before 100% completion of construction, such supply will be treated as zero-rated as the property will be used for residential purposes in future.
- Farm houses located on the agricultural land, which satisfies the definition of residential property will be treated as residential building
- First supply of a building converted as residential building will be zero-rated provided, supply is made within 3 years from the date of conversion and the original building was not used for residential purpose for 5 years prior to commencement of conversion.
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