In case of a supply of residential buildings, it is important to consider whether it is the first supply or subsequent one. When a property is sold within three years of its construction, no VAT would be applied on the first sale. For the subsequent sale, the property will be free from VAT supply. This is also applicable in case the duration of property lease is more than 6 months, and the tenant of the property has an Emirates identification.
What do you Understand by Residential Buildings?
The building built and designed for human occupation is known as residential property. Some of its characteristics are given below.
- Any residential property or its part that is intended for occupying by human
- Accommodation for school people or students
- Property built for running a nursing home, rest home, orphanage and the like
- Home accommodation for police or armed forces
Features not included in residential building are given below
- Any movable residential property that can be shifted without causing any damage
- Building used as motel, hotel, breakfast establishment, hospital and the like
- Building used as service apartment other than people’s accommodation
- Building constructed without any lawful rights
First Supply of a Residential House
In the first supply of a residential building, it can be either for resale or lease. In this, it will have zero-rated VAT when in UAE. But the first supply of the building should be done within the first three months after completion of its construction. The first supply is zero-rated, and instead, the VAT would be calculated on costs of the first supply of buildings that can be recovered in full.
Is there any Completion Date for the Building?
Yes, the condition for the completion date of the building is given as below
- Date of building should be certified by the appropriate authority
- Date of the building or the date of building when occupied, whichever is earlier
Details of Subsequent Supply of Residential Buildings
Subsequent supply of residential buildings is considered after its first supply when it is free from VAT. This is also applicable within the first three years of the construction of building. As the supplies are free from VAT, the details of VAT cost need to be given by supplier that is related to subsequent supply, and it will not be eligible for any tax recovery.
For instance, VAT paid on agent fees, general upkeep cost, property maintenance and the like in case of subsequent supply will not be included within tax recovery.
VAT for Sale and Rent of Residential Properties
- No VAT needs to be paid for residential properties in UAE as per rules. Even the landlords of the properties also need not pay VAT on account of lease or sale of property.
- In case the service and goods are included under an exempted category like residential property, the VAT paid on the purchase of any kind of expense should not be refunded.
- When any VAT is paid for residential property, like maintenance, service charge, water, electricity and the like, it should be included within the recovered expense list.
- When a UAE citizen opts for home construction, they are subject to VAT for the materials used in the construction of the building. However, they can file for a refund of the VAT within a time of 6 months upon certificate completion.
GCC Filings is a great option with regard to getting all necessary assistance regarding VAT registration in UAE, return filing and all other accounting and auditing procedures.
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