VAT on supply of real estate in UAE
The real estate sector in UAE supports a large number of livelihoods and provides the necessary infrastructure, commercial and residential spaces which are crucial for the development of the country. Let us understand what is meant by real estate and how is supply of real estate treated under VAT in UAE.
What is real estate?
Real estate is generally considered to be property consisting of land or buildings and includes:
- 1.Any area of land over which rights or interests or services can be created
- 2.Any building, structure or engineering work permanently attached to the land
- 3.Any fixture or equipment which makes up a permanent part of the land or is permanently attached to the building, structure or engineering work
What is a supply of real estate in UAE?
Under UAE VAT, a supply of real estate is treated as a supply of goods. Hence, a supply of real estate includes the transfer of ownership of the real estate, or the right to use the real estate, to another person.
For example: Sale of a residential building, lease of a commercial property, sale of a charitable building, sale of bare land are all examples of supply of real estate.
It is also possible to make a supply of services which are directly connected to real estate. This will be the case where the services are directly connected to the real estate, or where the supply involves the grant of a right to use the real estate.
For example: Supply of interior decoration service, architecture service, etc. are supplies of services related to real estate.
VAT liability on supply of real estate
The supply of real estate can be divided into the following categories:
a. Supply of 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
The supply of commercial property is subject to VAT at the standard rate of 5%.
To learn more about VAT on supply of commercial property, you can refer our article 'VAT on supply of commercial property'.
b. Supply of residential property
A residential building is a building which is intended and designed for human occupation.
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.
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.
To learn more about VAT on supply of residential property, you can refer our article 'VAT on supply of residential property'.
c. Supply of mixed use developments
A mixed use development is a building or plot of land which has clear and distinct areas which are put to different uses, which would have a different VAT treatment when supplied.
When a distinct part of a mixed use development is supplied, the VAT liability on the supply depends on the use the particular part of the building is being put to.
If the portion supplied is being used for commercial purposes, the supply will be taxable at 5%, whereas if the portion is being used for residential purpose, it needs to be checked whether the supply is the first supply or a subsequent supply. If it is the first supply of the property within 3 years from its date of completion, the supply will be zero rated. If the supply is a subsequent supply, the supply will be exempt from VAT.
To learn more about VAT on supply of mixed use developments, you can refer our article 'VAT on supply of mixed use developments'.
d. Supply of 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. Bare land is land which is not covered by completed buildings, partially completed buildings or civil engineering works.
The supply of bare land is exempt from VAT.
Where a plot of land is supplied which is not a 'bare land', it will be considered to be commercial land and the supply will be subject to VAT at the standard rate of 5%.
To learn more about VAT on supply of bare land, you can refer our article 'VAT on supply of bare land'.
e. Supply of charitable buildings
A charitable building means any building, or any part of a building, that is specifically designed to be used by a charity and solely for a relevant charitable activity.
The first supply of a building, or any part of a building, is zero-rated if the building was specifically designed to be used by a charity and solely for a relevant charitable activity.
A subsequent supply of a charitable building will be subject to VAT at the standard rate of 5%.
Hence, supply of real estate can be of various types, each of which is taxed in a different way, under UAE VAT. Persons involved in the real estate sector should take note of these provisions to ensure correct compliance under UAE VAT.