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It is very common to have owners' associations in residential buildings. These owners' associations collect money from the owners of individual units within the property in order to maintain the upkeep of the building. Let us understand the applicability of VAT on owners' associations in UAE.
Owners' associations (OA's) are often established to manage and administer the common areas of a building on behalf of all of the owners of a building. They commonly deal with issues such as cleaning, maintenance, security, etc. and are often comprised of members who are the owners of the individual units themselves. An OA is normally responsible for the procurement of services required to maintain the upkeep of the property and collects money from all the owners of individual units within the property in order to pay the expenses of contractors or to fund major refurbishment works.
OA's are usually not-for-profit organisations or associations, but they can take many different legal forms. They are not normally incorporated legal entities, but instead they could be:
An Owners' Association will be required to register for VAT where any of the following applies:
The VAT liability of supplies made by Owners' Associations may vary depending on the nature of the supply made by the OA.
In cases where the OA is conducting an economic activity and has the ability to register for VAT, any service charges made by the OA should be subject to VAT at 5%. As a result of charging VAT on the service charges, the OA should therefore have the right to recover any VAT incurred on services it purchases from third parties for the purposes of maintaining the building.
Hence, owners' associations will be required to register under VAT if they satisfy the laid down conditions. When an owners’ association is registered under VAT, any service charges charged by them to owners of individual units in the premises will be subject to VAT @ 5%. They will also be allowed to recover VAT paid on costs incurred for the maintenance of the building.