Real Estate Investments in the Time of VAT

Posted by Noble Empire Real Estate

On the 1st of January 2018, VAT was implemented across the UAE and other GCC countries. This has put big ticket investors and developers on the alert. However, everyone agrees that VAT is a necessary step towards expanding and developing the region. Diversifying the nation’s economy and reducing the dependence on oil revenues have been a priority among all oil producing countries for decades. VAT is a truly remarkable step towards that.

Here are the most frequently asked questions about VAT that we have come across:

Are residential and commercial buildings subject to VAT?

Residential buildings: The first supply and subsequent supply of a new residential building within the first three years of construction is zero rated. Residential tenants are exempt from VAT.

Commercial Buildings: 5% VAT is applicable on commercial building sales and tenancies.

Does the owner of real estate have to register for VAT?

The owners of residential buildings are not required to register for VAT if they do not have other business activities that exceed the prescribed amounts by the Federal Tax Authorities.

Can a real estate owner recover VAT paid in relation to real estate?

An owner of residential building cannot recover VAT as residential buildings are exempt from VAT however the owner of commercial buildings might be able to.

How is a mixed-use building (residential and commercial) treated for VAT?

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

For more information, please contact relevant authorities and the Federal Tax Authority directly

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