VAT on supply of bare land

Introduction

Bare land is land which is not covered by completed buildings, partially completed buildings or civil engineering works. Let us understand the applicability of VAT on bare land in UAE.

What is bare land?

The word 'land' means any area on the surface of the earth, including any trees, plants or natural objects in, under or on top of it. The ordinary meaning of bare land is vacant land i.e. land that has no buildings, whether partial or not, or nothing else on the land.

In order for land to be considered 'bare land' under UAE VAT, none of the following must be present on top of the land:

• Completed buildings or
• Partially completed buildings or
• Civil engineering works

Where a plot of land is covered only by natural objects such as natural trees and natural plants, this will be considered bare land under UAE VAT.

VAT on supply of bare land

The supply of bare land is exempt from VAT. This includes supply of bare land by either lease or by sale. As a result, VAT on costs associated with the supply of bare land will not be recoverable by the supplier. For example: agent fees, legal fees, etc.

Where a plot of land is supplied which does not meet the definition of ‘bare land’, it will be considered to be commercial land and the supply will be subject to VAT at the standard rate of 5%. As a result, the supplier will be eligible to recover the VAT paid on costs associated with the supply of the plot of land.

When is a building considered to be partially completed?

A building will be considered to be partially completed when the stage of construction has reached beyond the foundation level.

When is land considered to be covered by civil engineering works?

Examples of civil engineering works include roads, bridges, and pipes used for mains water or power services. Land will not be considered to be 'bare land' where it is covered by civil engineering works which are complete, or partially complete.

Will farm land be treated as bare land?

Farm land will normally be considered to be commercial land as it will usually be covered with infrastructure or civil engineering works required to make it operational as a farm. For example: Irrigation systems, roads, utility connections etc. However, this will need to be assessed on a case to case basis.

How will lease of bare land for development be treated?

Where a landlord leases a plot of land to a tenant who intends to develop the land, it is important that the landlord identifies whether he is supplying bare land or covered land to the tenant. Where the landlord is making a supply of bare land, the supply will be exempt from VAT. If the landlord is making a supply of land which is not bare, the supply will be subject to VAT at the standard rate of 5%.

Hence, under VAT in UAE, the supply of bare land will be exempt from VAT. When a plot of land is supplied, which does not meet the definition of bare land, the supply will be subject to VAT @ 5%.