- What is Real Estate?
Generally, real estate refers to land or buildings and includes:
- An area of land that can be used to create rights, interests, or services;
- Buildings, structures, or engineering works permanently attached to the land;
- Fixtures and equipment that are permanently attached to the land, the building, the structure, or engineering work.
- What is a supply of real estate?
A supply of real estate is treated as a supply of goods for VAT purposes (see Article 2 of the VAT Executive Regulations).
Therefore, a supply of real estate involves the transfer of ownership of real estate or the right to use real estate to another party.
- When is the time of supply determined for a real estate transaction?
Depending on the nature of the real estate transaction, the time of supply will be determined:
- One-time payment for sale or lease – earliest of any of the following dates:
- The transfer date of a property, or
- The date on which possession of the property is transferred
- The completion date of construction, or
- The date the payment was received, or
- Issue date of the Tax Invoice.
- Any contract with periodic payments or consecutive invoices – earliest of dates::
- The date the Tax Invoice was issued, or
- Payment due date is shown on the Tax Invoice, or
- The date of payment receipt.
The date of supply will be triggered at the 12-month mark if none of the above events has occurred after the date of provision of goods or services.
A construction project’s certification at a particular time will not trigger the date of supply under VAT. Typically, certification of a project is linked to other obligations such as the payment date, which in turn may trigger the date of supply for the project.
- Are real-estate transactions subject to UAE VAT?
Yes, it is taxable as a supply of real estate is regarded as a supply of goods.
A few exceptions exist, and certain supplies under real estate are either zero-rated or are considered exempt.
- Which transactions in real estate are exempt?
UAE VAT is not applicable to the following types of real estate transactions:
- Supply of existing residential property
- Supply of Bare Land.
- Which types of real estate transactions are zero-rated?
Zero-rated transactions in UAE real estate include the following:
- Supply of the first residential building.
- Supply of a new charitable building.
The supply of real estate made within Designated Zones is exempt from UAE VAT.
- What is a residential building?
A residential building is one that is intended and designed for human habitation.
- What does not qualify as a residential building?
The following are not considered residential buildings/properties:
- Supply of the first residential building
- Buildings that are used as hotels, motels, bed and breakfasts, hospitals, etc;
- Serviced apartments provide a variety of services in addition to the supply of accommodation;
- Construction or conversion of a building without lawful authority.
- Which residential building supply is taxed at the standard rate of tax?
As a general rule, the Supply of residential buildings is exempt from taxes or zero-rated; however, when the supply is for less than 6 months to a person without a valid ID card issued by the Federal Authority for Identity and Citizenship, it is taxable at the standard rate.
- For a zero-rated supply, which supply qualifies as the “first supply of residential building”?
A first supply includes either a sale or lease of the building, but it must occur within 3 years after the building was completed. Provided that the building is supplied within the relevant timeframe, regardless of who acquires it.
Following supplies of the building, either by sale or by lease, within 3 years of its completion date are not zero-rated, since they do not qualify as the first supply of the building.
- What type of supply is considered “existing residential property” that is exempt?
Other than the initial supply, a residential building is exempt from VAT. If the property is being supplied within three years of completion of the building, this includes the subsequent supply of the property.
- Can suppliers of existing residential properties claim input VAT on building costs?
After the first supply of the residential building, if the supplier incurs VAT on any subsequent supplies such as agent fees, or on maintenance costs relating to the property after the first supply, then these costs are considered to directly relate to the exempt supply of the building. Therefore, the supplier will be unable to recover any VAT on such costs via its VAT return.
Source: Federal Tax Authority