Accounting for Real Estate in the UAE can be like wrestling with a big, hairy monster. Hard to understand and even more difficult to tame. Now with VAT in place, it makes your job that much more difficult.
So many regulations. Tons of fine details. And tons of exemptions and special cases. All of it might have you questioning your sanity.
Don’t you wish there was a simple way to straighten it out?
Well, we heard you! Here is a perfect primer to simplify Real Estate special cases accounting for VAT.
ut before you delve deep into Real Estate special cases, we recommend checking out our Definitive Guide on VAT for Real Estate first.
VAT’s effects for Non-Resident Landlords
What happens If you’re a non-resident landlord in the UAE? That means you need to register and pay VAT for providing “taxable real estate supplies.” What does this exactly mean?
The landlord’s rental income from commercial or zero-rated residential properties connects to these supplies. Also, it applies to the sale of the same properties.
And while many UAE landlords don’t have to register with the FTA (only if annual revenue is over Dh375,000), ALL non-resident landlords do.
As soon as they start providing real estate supplies. In other words, when the lease begins.
Good to know if you want to start a real estate business or serve someone who has one.
Ready to see what’s next?
VAT for real estate within a designated zone
As you probably know, VAT on the supply of goods does not apply to UAE designated economics zones. And the lease and sale of real estate is considered a supply of goods.
(Check out our guide for VAT in designated zones)
That means you dont’ pay VAT on the sale or lease of real estate in a designated zone. Good if you’re a landlord.
However, if you provide real-estate related services in a designated zone, you are unfortunately subject to VAT and NOT EXEMPT. So, what constitutes associated real-estate services?
- Real estate agency or brokerage services
- Providing real estate engineering service
- Construction services
- Property demolition services
- Property maintenance services
See, you can’t assume just because designated zones are “VAT-free,” all businesses are exempt. Aren’t you glad you’re smarter than that?
Let’s move on to some more assumption-busting VAT truths…
How Does VAT Affect Labor Accommodations?
Companies that provide employee accommodations can be honorable corporate citizens and save money at the same time.
Depending on which housing option they pursue, companies can actually recover VAT.
You see, FTA splits labor accommodations into two categories: “Residential” and “Serviced.”
If employee accommodation services provided are considered related to the general upkeep of the property and area, it will be exempt from the VAT. This will make it a “residential accommodation.” These services include:
- Cleaning of communal areas and garbage collection
- Pest Control
- Laundry rooms, Pools, Prayer Rooms, etc.
However, if the accommodation contains services considered to exceed the general upkeep of the property and provide more than those above, it is designated as a “serviced accommodation.” These extra services include:
- Supply of some or all of telephone or internet access
- Room Cleaning Services
- Laundry Services
- Changing of Bed Linens
So, residences with these additional services are subject to VAT.
Lastly, you must consider whether the residence is a single composite supply or a mixed supply, consisting of different component parts. A single supply equals less VAT paid versus a mixed supply…
Stay with me now as we move on to another curious real estate case.
The VAT on “Bare Land”
The most important thing to know about “bare land” is that it is VAT exempt! Simply put, “bare land” is a vacant plot of land. Land in which there is currently no construction.
Nothing on that land can be completed, partially completed (constructed beyond foundation level), or undertaken for civil engineering works (roads, bridges, pipes used for water or power).
So even if you buy or sell bare land, you don’t have to pay VAT.
One thing: if you’re using your “bare land” for commercial activity, like for a parking lot, it’s not necessarily exempt anymore. Also, farmland is not exempt either.
So far we’ve talked a lot about business. What about non-business property?
Does VAT Apply to Charitable Buildings?
Not everything in life is about business. Helping out your fellow man through charity is an important civic duty.
So how does VAT apply to charitable buildings?
Charitable activities take place at a charitable building. What does this include, according to UAE Law?
- Religious and philanthropic activities.
- Collecting donations, in cash and in kind. Then using those donations for human aid, orphan sponsorship, building mosques and other types of assistance.
- Humanitarian relief campaigns and charitable events
- Programs/projects launched by these organizations inside or outside the country
Okay, now we have that out of the way. How does VAT apply to the sale and lease of charitable buildings?
The first lease or sale of charitable buildings (first supply) is zero-rated. And unlike other real estate, the zero-rating applies to both commercial and residential buildings used for charity.
And get this – the zero rating on charitable buildings is good for an unlimited time. There’s no time limit on the lease or sale of them like other residential buildings, which have to be supplied within three years.
The last couple things – this exception not only applies to whole charitable buildings but any part of a building, too. And after the first sale or lease, charitable buildings revert to the 5% VAT rate.
Real Estate Special Cases – You’re Up To The Challenge!
I know we went over a lot in a short time.
Good for you for sticking with it!
As you can see, there’s much to explore on Real Estate and its many special cases. Continue doing your homework and getting prepared for the next VAT challenge that comes your way.
Did we cover everything on Real Estate VAT special cases? Do you still have questions? If so, feel free to shoot us an email at Dhariba.com for all your tax questions. Or just leave us a comment below.