DUBAI: The Federal Tax Authority (FTA) of the United Arab Emirates (UAE) on November 18 released regulations clarifying the value-added tax treatment of residential and commercial real estate purchases and sales.
VAT is being introduced in the UAE from January 1, 2018.
The FTA explained that the supply of commercial real estate (sale or lease) will be subject to the five percent tax rate, while residential units will generally be exempt, except for the first supply of a new residential building within the first three years of its construction, which will be zero-rated.
The FTA defined the supply of real estate as “activities that include, among other things, the sale, lease, or giving of the right to any real estate.” Adding: “A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings that can be occupied by any person as [a] main place of residence. This does not include any place that is not a building fixed to the ground and that can be moved without being damaged [or] any building that is used as a hotel, motel, bed and breakfast establishment, hospital or the like, a serviced apartment for which services in addition to the supply of accommodation are provided, and any building constructed or converted without lawful authority.”
“Meanwhile, a commercial building is any building or part thereof that is not a residential building. Examples include offices, warehouses, hotels, shops, etc.”
The owner of any building that is not residential will need to register if the value of the supplies over the preceding 12 months exceed AED375,000 (USD102,097) in value, or if it is expected that they will exceed that sum over the following 30 days.
The guidance also sets out the VAT recovery rules for mixed-use buildings, saying input tax credits should be proportional to the split between exempt, zero-rated and five-percent-rated supplies, as determined by the rules above.
