VAT on supply of commercial property
VAT on real estate can be divided into supply of residential property, commercial property, mixed use developments, bare land and charitable buildings. In our previous article 'VAT on supply of residential property' , we have learnt about the VAT treatment of supply of residential property. Similarly, let us learn what is meant by commercial property and VAT on supply of commercial property in UAE.
What is commercial property?
Commercial property is any land or buildings, which are not one of the following:
- 1. A building designed as a residential building or number of residential buildings or
- 2. A building intended for use by a charity for a relevant charitable activity or
- 3. Bare land
VAT on supply of commercial property
The supply of commercial property is subject to VAT at the standard rate of 5%. Here, supply of commercial property includes by way of sale or lease. Hence, VAT is applicable on the consideration received for the supply of commercial property.
Where the consideration for the supply of commercial property is payable in instalments, VAT will be applicable to each instalment paid. Since the supply of commercial property is a taxable supply, VAT paid on costs incurred for making the supply can be recovered in full.
VAT payment on supply of commercial property
VAT is to be collected and paid to the FTA by the supplier as usual in the following types of supply of commercial property:
- 1. Lease of commercial property
- 2. Sale of commercial property by the developer of that property
- 3. Sale of commercial property with the benefit of sitting tenants to a buyer who is a taxable person, which qualifies as the transfer of a business
In these cases, VAT will be collected by the supplier, reported and paid to the FTA in the relevant VAT return.
A special payment process applies only in the case where a commercial property is sold in UAE by any supplier other than the developer of that property. When commercial property is sold by a supplier other than the developer of the property, the steps to be followed for VAT payment on commercial property are:
- a. The seller of the property will issue a tax invoice to the buyer in relation to the sale of the property as normal.
- b. Before completing the ownership transfer process with the Land Department, the buyer of the commercial property will be required to pay the VAT due on the purchase directly to the FTA. The steps to make the VAT payment directly to FTA has been explained in detail in our article 'How to pay VAT on commercial property in FTA portal'.
- c. Once the payment of VAT has been made to the FTA, the buyer will receive a Payment Transaction Number. The buyer will be required to produce the Payment Transaction Number to the Land Department in order to process the ownership transfer. Without this evidence that the VAT on the purchase has been paid, the purchase of the property cannot proceed and this will lead to delays.
- d. The supplier will declare the output tax due on the property in the relevant VAT return in the normal way, and will then also include the value of the output tax in the adjustments column of the return. This will ensure that tax on the supply of commercial property is not paid twice to the FTA.
Hence, supply of commercial property is subject to VAT @ 5%. As it is a taxable supply, VAT paid on costs related to the supply of commercial property can be recovered in full. When the commercial property is sold by a supplier other than the developer of the property, the VAT on supply of commercial property has to be paid by the buyer directly to the FTA. To learn more about VAT on supply of real estate, you can refer our article 'VAT on real estate' .