The impact of uae vat on real estate sector

THE IMPACT OF UAE VAT ON THE REAL ESTATE SECTOR

VAT is one of the most common types of consumption tax. VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost. The Businesses act as tax collector for the government authorities. They collect, account and pay the tax to the government.

Real estate sector

Real-estate is one of the sectors which impacts all expatriates and citizens in UAE in the form of house rents and prices.

The owners of residential buildings do not have to register for VAT if they do not have any other business activities. The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds Dh375,000 or it is expected that they will exceed Dh375,000 over the coming 30 days.

Supply in relation to real estate

A supply of real estate may include the sale, lease or giving the right in any real estate.

Meaning of Residential building for VAT purposes

A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as a main place of residence. It does not include-. Any building that is used as a hotel, motel, bed and breakfast establishment or hospital or the like or a serviced apartment for which services in addition to the supply of accommodation are provided or any building constructed or converted without lawful authority

VAT on Residential property

Residential property will be exempted from the VAT. Exceptions of property in UAE, on the sale of new residential property VAT will charge at zero rate of VAT whereas bare land will be exempted from VAT. The first supply of a new residential building within the first three years of it being constructed shall be zero-rated. All subsequent supplies shall be exempt, even if within the first three years.

Commercial building for VAT purposes

A commercial building is any building or part thereof that is not a residential building. Examples would be warehouses, hotels, shops, etc

VAT RATE ON COMMERCIAL BUILDING

Commercial property (sales and leases) will be levied with VAT at the standard rate of 5 per cent.

Valuation and prices of commercial property price are likely to increase. The commercial and retail sector is likely to be more expensive by five percent in the case of rental pricing. However, there may be an effect on the prices and valuation may be increased by two to five percent

TREATMENT OF MIXED –USE BUILDING (RESIDENTIAL AND COMMERCIAL)

The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply or a subsequent supply. The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.

VAT on real estate broker commissions

the services of a real estate brokerage are likely to be at standard VAT 5%

TRANSITIONAL RULE ON REAL ESTATE

Transitional rules refer to those transactions which are going to overlap the two periods i.e. period before and after vat implementation.

In case of the construction contracts running over the period of commencement date, VAT is not applicable on the portion of supplies provided before 31st December 2018. For real estate contracts, VAT is applicable on supplies made on or after January 1, 2018.