How VAT is Applicable to Real Estate? | UAE

What is a residential and commercial building for VAT purposes?

A Residential building is a building or part of it that is designed and designed for occupancy by individuals, including any building occupied by a person as its principal residence.
The residential building does not include:
• Any place is not a fixed building on the ground and may be moved without damage.
• Any building used as a hotel, hostel, place of residence, hospital or similar.
• A serviced apartment
offers accommodation and accommodation.

While a Commercial building is any building or part thereof other than a residential building such as offices, stores, hotels and shop and the like.

Is the residential and commercial property subject to VAT?

Supply of the residential building for the first time within 3 years of construction shall be subject to zero. All subsequent purchases shall be exempt from tax even if during the first three years of completion of its construction. While all commercial premises are subject to 5% VAT, including all buildings that are not residential buildings or any parts thereof.

How is a mixed-use building (residential and commercial) treated for VAT?

The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.

Will VAT be charged on the property I am renting?

The rent of residential building will generally be exempt from VAT while the rent of commercial building will be subject to VAT at 5%

Can a real estate owner recover VAT paid in relation to real estate?

An owner of the residential building will not be able to recover VAT in respect of expenses related the exempt supply of the residential buildings while an owner of a commercial building will generally be able to recover VAT in respect of expenses related to the supply of the building.
VAT for Business

What kind of records are businesses required to maintain, and for how long?

Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions.

The documents which are required to maintain according to the Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No (7) of 2017 on Tax Procedures are as follow:

  • Accounting books in relation to that Business, which include records of payments and receipts, purchases and sales, revenues and expenditures, and any business, and any matters as required under any Tax Law or any other applicable law, including:
    • Balance sheet and profit and loss accounts.
    • Records of wages and salaries.
    • Records of fixed assets.
    • Inventory records and statements (including quantities and values) at the end of any relevant Tax Period and all records of stock-counts related to Inventory statements.
  • Additional records as may be required in the Tax Law and its Executive Regulation.

The time period for holding and maintaining any of the records mentioned above is for a period of 5 years after the end of the Tax period and for a period specified in the Tax Law for real estate records.

How long must a taxable person retain VAT invoices for?

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

What sectors will be zero rated and be exempt?

The VAT will be charged at 0% in respect of the following main categories of supplies:

  • Exports of goods and services to outside the GCC;
  • International transportation, and related supplies;
  • Supplies of the certain sea, air, and land means of transportation (such as aircraft and ships);
  • Certain investment grade precious metals (e.g. gold, silver, or 99% purity);
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
  • Supply of certain education services, and supply of relevant goods and services;
  • Supply of certain Healthcare services, and supply of relevant goods and services.

The following categories of supplies will be exempt from VAT:

  • The supply of some financial services (clarified in VAT legislation);
  • Residential properties;
  • Bare land; and
  • Local passenger transport
  • How will insurance be treated?

    Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.

    Under which conditions will businesses be allowed to claim Input VAT on expenses?

    The VAT on expenses that were incurred by a business can be deducted in the following circumstances:

    • The business must be a taxable person (the end consumer cannot claim any input tax refund).
    • The VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
    • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
    • The goods or services acquired are used or intended to be used for making taxable supplies.
    • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.
    • In contrast, VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.

      Will VAT be paid on imports?

      The VAT is due on the goods and services purchased from abroad. In case the recipient in the State is a VAT registered person, the VAT would be due on that import using a reverse charge mechanism. In case the recipient in the State is a non- VAT registered person, the VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to that person.

      How will Government Entities be treated for VAT purposes?

      Supplies made by government entities will typically be subject to VAT. However, certain supplies made by government entities will be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies.

      How can one object to the decisions of the Federal Tax Authority?

      The person shall request the FTA to reconsider its decision by submitting a reconsideration request form to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.

      If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee and such objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before objecting to the Committee and the Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.

      And if the person is still not satisfied with the decision of the Committee, as a final step, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision.

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