VAT on owners’ associations
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.
What is an Owners' Association?
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:
- 1. A legal partnership between the members or
- 2. An association with legal status, registered under laws concerning joint property ownership or
- 3. An unincorporated group or association with no legal personality/status
Is an Owners' Association required to be registered for VAT purposes?
An Owners' Association will be required to register for VAT where any of the following applies:
- 1. It exercises any form of control, management and administers the common areas, including dealing with issues such as maintenance, security, rule enforcement, general well-being of tenants, financial management and engagement with statutory authorities
- 2. It has a legal personality distinct from its members e.g. where it is registered under laws concerning joint property ownership and is constituted as a formal partnership, etc.
- 3. It undertakes an economic activity
- 4. It makes supplies which would be taxable supplies if the entity was registered for VAT
- 5. Its taxable turnover exceeds the mandatory registration threshold (or it meets the conditions to register for VAT voluntarily). To learn more about the threshold for registration under VAT, you can refer our article 'VAT registration threshold calculation'.
VAT on Owners' Associations
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.
THE MOST TRUSTED VAT SOLUTION IN MIDDLE EAST
When it comes to managing VAT compliance and multiple other business processes, more than 50,000 businesses in the Middle East trust Tally.ERP 9.