VAT FAQs on supply of real estate in UAE
In our article 'VAT on supply of real estate', we have learnt the different scenarios of supply of real estate and VAT applicability in each case. Let us now answer the major FAQs with respect to supply of real estate under UAE VAT.
FAQ 1: What is a supply in relation to real estate in UAE?
Answer: A supply of real estate may include the sale, lease or giving the right in any real estate.
FAQ 2: Is a residential property subject to VAT in UAE?
Answer: The first supply of a new residential building within the first 3 years of it being constructed will be zero rated. All subsequent supplies will be exempt, even if they are made within the first 3 years of it being constructed.
FAQ 3: Is commercial real estate subject to VAT in UAE?
Answer: All supplies of commercial properties are subject to VAT @ 5%.
FAQ 4: Can a real estate owner recover VAT paid in relation to real estate?
Answer: An owner of a residential building will be able to recover VAT in respect of expenses related to the first supply of the building, if it is supplied within 3 years of its completion. This is because the first supply of a residential building, within 3 years of its completion, is zero rated. However, for subsequent supplies of residential buildings, the owner will not be able to recover VAT on expenses, as it is an exempt supply.
An owner of a commercial building will generally be able to recover VAT in respect of expenses related to supply of the building, as it is a taxable supply.
FAQ 5: How is a mixed use building (residential and commercial) treated for VAT?
Answer: The rent or sale of the residential part of the building will be treated as zero rated or exempt, depending on whether it is a first supply or subsequent supply.
The rent or sale of a commercial part of the building will be treated as subject to VAT @ 5%.
The tax incurred by the owner of the building needs to be apportioned when there is an exempt supply and the portion related to the taxable supply (at 0% and 5%) can be recovered.
FAQ 6: Does a person owning real estate need to register for VAT?
Answer: The owners of residential buildings do not have to register under VAT if they do not have any other business activities. Where owners have other business activities, they should check whether their turnover exceeds the threshold limit for registration. You can learn the threshold limit for registration in our article VAT registration threshold calculation.
The owner of any building that is not residential will have to register if the value of supplies over the preceding 12 months exceeds AED 375,000 over the coming 30 days.
FAQ 7: Will VAT be charged to a tenant on the property he/she is renting in UAE?
Answer: The rent of residential buildings will generally be exempt from VAT. The rent of commercial buildings will be subject to VAT @ 5%.
FAQ 8: What is the VAT rate applicable to different types of supply of real estate?
Answer: The following is the VAT treatment of different types of supplies of real estate:
- 1.Standard rated supplies (Taxable @ 5%)
- a.Lease or sale of commercial property
- b.Car parking and hotels
- 2.Zero rated supplies (Taxable at 0%)
- a.First supply of residential buildings within 3 years of its completion
- b.First supply of Charity related buildings
- 3.Exempt supplies
- a.Supply of residential buildings
- b.Bare land
Hence, the supply of real estate under VAT in UAE is taxed differently based on the type of supply. It is essential that persons dealing in the real estate sector understand the tax applicability on real estate supplies.