VAT on supply of Residential Buildings
VAT on Supply of residential buildings in UAE is , based on whether the supply is the first supply or a subsequent supply. Let us understand what is meant by the term 'residential building' and the VAT treatment of supply of residential buildings.
A residential building is a building which is intended and designed for human occupation. This includes:
- 1. Any building or part of a building that a person occupies, or that it can be foreseen that a person will occupy, as their principal place of residence
- 2. Residential accommodation for students or school pupils
- 3. Residential accommodation for armed forces and police
- 4. Orphanages, nursing homes and rest homes
A residential building is not:
- 1. Any place that is not a building fixed to the ground and which can be moved without being damaged, such as a movable home
- 2. Any building that is used as a hotel, motel, bed & breakfast establishment, or hospital
- 3. A serviced apartment for which services in addition to accommodation are provided
- 4. Any building constructed or converted without lawful authority
Note: A building is still considered to be a residential building if a small proportion of it is used as an office or workspace by the occupants, if it includes garages and gardens used together with the property, or if it includes any features that may be said to comprise part of a residential building.
First supply of a residential building
The ‘first supply’ of a residential building includes a supply of the building by either sale or lease. The first supply of a residential building will be zero-rated under VAT in UAE. However, the condition for this is that the first supply should be made within 3 years of the building’s completion date. Since the first supply of a residential building is zero rated, the VAT incurred on costs relating to the first supply of the building can be recovered in full.
Note, this is regardless of who the building is supplied to (a registered person, a non-registered person, a related party, etc.). The important point to ensure here is that the first supply should be made within 3 years of the building’s completion.
What is completion date?
The completion date of a building is:
- a. The date the building is certified as being complete by an appropriate qualified authority or
- b. The date the building is occupied, whichever is earlier
Subsequent supplies of residential buildings
Any subsequent supply of a residential building after the first supply, is exempt from VAT. Note that even if a subsequent supply happens within 3 years of the building’s completion, it will be exempt from VAT.
Since subsequent supplies of residential buildings are exempt from VAT, VAT paid on costs incurred by the supplier related to the subsequent supply will not be eligible for input tax recovery.
For example: VAT paid on agent fees, costs related to general upkeep and maintenance of the property, etc. for the subsequent supply, will not be eligible for input tax recovery.
Hence, the VAT treatment of residential buildings depends upon whether the supply is the first supply or a subsequent supply. If the supply is the first supply of the residential building, which is made within 3 years of the building’s completion, it will be zero rated. However, if the supply is a subsequent supply of the residential building, even if it is made within 3 years of the building’s completion, it will be exempted from VAT.