Residential units in the UAE will remain generally exempt from value-added tax (VAT), except for the first supply of a new residential building within the first three years of it being constructed.
Meanwhile, the supply of commercial real estate, selling or leasing, will be subject to VAT at 5%, reported state news agency Wam, citing a statement by the Federal Tax Authority (FTA). The FTA defines the supply of real estate as activities that include, among other things, the sale, lease or giving of the right to any real estate.
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. All supplies of commercial property are subject to VAT at 5%, including all buildings or parts thereof that are not residential buildings.
The owners of residential buildings do not register for VAT if they do not have any other business activities. However, owners who do have other business activities must check to see whether or not they are required to register, reported Wam.
The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceed AED375,000 in value, or if it is expected that they will exceed AED375,000 over the coming 30 days. An owner of a residential building will not be able to recover VAT on expenses related to the supply of the exempt residential building. Meanwhile, an owner of a commercial building will generally be able to recover VAT on expenses related to the supply of the building.
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, however, shall be treated as subject to VAT at 5%.
The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.