A Guide to VAT Implication on Residential Real Estate Sector in the UAE

The UAE introduced Value Added Tax (VAT) in 2018 with great impact on a wide range of sectors including the real estate industry. However, you need to understand how the Federal Tax Authority (FTA)’s tax rates on taxable and non-taxable supplies in the real estate sector to understand the VAT impact on the sector. Consulting with tax agents in Dubai will help you better understand VAT on the residential real estate sector in the UAE. Read ahead to know further:

VAT Rates in the Real Estate Sector

The UAE VAT Law rates VAT on the real estate sector as Exempt, Zero-Rated and Standard Rated. Residential properties and bare land is rated as exempt, while commercial properties are subject to the standard VAT rate of 5%.

How Does The FTA Define Residential Properties? 

Any building constructed for the purpose of human occupation is considered to be a residential property under VAT in the UAE. The following types of buildings are considered to be residential properties in the UAE under VAT.

  • Buildings or part of the building is occupied or to be occupied by a person as the residence
  • Buildings used as residential accommodation for students
  • Orphanages
  • Nursing Homes and resting homes
  • Farm Houses on agricultural land

Sometimes, the occupants of a residential building may use a small portion of the building as an office space or workspace. The FTA will still consider such buildings as residential buildings for VAT purposes. This information is significant as many people have started working remotely using their residential buildings as office spaces or workstations. However, it’s advisable to consult with VAT consultants in Dubai before making any decision regarding VAT.

VAT on Residential Properties: The First Supply of the Building

The first supply of a residential building is treated as zero-rated under VAT in the UAE. If the first sale or lease happens within three years of construction, the VAT on the residential building in the UAE will be treated as zero-rated. You are also allowed to fully recover the VAT incurred on the costs of the first supply of the residential building. The subsequent supplies of the residential building will be treated as exempt under the UAE VAT. Tax agents in Dubai can advise you further on the matter.

VAT on Service Charges Related to Residential Buildings 

The owner’s association often charges owners or tenants some money for services such as community management or the maintenance of communal areas. Service charges like these will be subject to VAT at the standards rate of 5%. If you are confused about the VAT on such service charges on residential buildings, consult with VAT consultants in Dubai.

Are Labour Camps Residential Buildings? 

In the UAE, most employers house their labourers in areas that are commonly called labour camps. Labour camps may take various forms and some employers even provide labourers with additional services apart from living accommodation. The VAT implications on labour camps must be analysed on a case to case basis to determine such buildings qualify as residential buildings.  The lodgings inside a labour camp will be treated as residential buildings in the following cases:

  • The labour camp lodging must be the employee’s principal place of residence. It means that the building labour camp lodging should be the place where the employee usually lives. An individual can have only one place of residence in the UAE even though the person can share the place of residence with other individuals.
  • The lodging must be a building fixed to the ground, which can’t be moved without being damaged
  • The building must be constructed or converted as per the existing regulations set out by a lawful authority
  • The building should not be similar to a hotel, motel, bed & breakfast establishment, or a serviced apartment for which services in addition to the supply of accommodation are offered

Why Choose VAT Services of Jitendra Chartered Accountants? 

Businesses engaged in the dealings of residential buildings must know about the VAT implications of such properties. You must be aware of the definition of residential buildings to fully understand the VAT ratings of each transaction associated with residential properties in the UAE. Normally, understanding the VAT ratings is beyond the grasp of taxable entities and that is why you must hire the best tax agents in Dubai such as Jitendra Chartered Accountants (JCA).

JCA is one of the leading VAT consultants in Dubai offering end-to-end solutions to all tax-related requirements. Our FTA-approved tax agent can guide you important requirements such as VAT registration, VAT return filing, VAT refund, VAT penalty redetermination, Vat reconsideration etc. JCA’s VAT consultancy services in Dubai makes VAT compliance simple and hassle-free.