Essential Guide to the VAT treatment of Farmhouses and Farmlands in the UAE

The UAE is home to numerous farmlands and farmhouses used for both commercial and non-commercial purposes. Apart from agriculture purposes, farms in the UAE are used for purposes including vacation rentals and as staycation destinations. However, the investors or owners of farms should consider the impact of VAT while operating a farmhouse or farmland. VAT consultants in Dubai can help business persons correctly gauge the VAT treatment of their properties and ensure tax compliance.

VAT treatment of farmhouses and farmlands depends on the purpose they are used for. VAT treatment varies for purposes such as using a farmhouse as a motel or the principal residence of the owner. Similarly, VAT treatment varies if farmland is used as agricultural land or bare land. Since determining these aspects can be complex for the investors and owners, it is better to seek the assistance of VAT consultants or tax agents in Dubai to properly account for VAT.

Investors or owners of farmland and farmhouses need to take into consideration, the VAT008 Guide issued by the Federal Tax Authority (FTA) for determining the VAT ratings. In this blog, we discuss the VAT treatment of farmlands and farmhouses. Read ahead.

VAT Treatment of Farmhouses used as Residential Building 

A farmhouse should be exempt from VAT if it meets the conditions to be treated as a residential building as set out in Article 37 of the Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017. As per this condition, a farmhouse should be treated as a residential building if it is occupied by a person as to its principal place of residence. By the virtue of the Executive Regulation, a farmhouse shouldn’t be considered as a residential building if it is any of the following types of building:

  1. Buildings not fixed onto the ground and can be moved without being damaged
  2. Buildings used as a hotel, motel, bed & breakfast establishment, hospital etc.
  3. Serviced apartments that provide services apart from providing accommodation
  4. Any building constructed or converted without lawful authority

For example, a farmhouse used as the weekend home of a family will not be considered a residential building as it’s not their principal residence. Their principal residence is somewhere else and they stay at the farmhouse only on weekends. Similarly, if a person uses a part of the farmhouse as a principal residence and another part as a motel, the part that is used as the principal residence will qualify as a residential building provided other conditions as per the executive regulations are met. VAT consultants in Dubai can offer investors and owners more insights into it.

VAT on First Supply of a Farmhouse Treated as a Residential Building  

The first supply of a farmhouse considered as a residential building will be zero-rated within three years of its completion. However, subsequent supplies including sales or leases will be exempt from VAT. Investors or farmhouse owners can seek the assistance of VAT consultants in Dubai before putting their property for sale or lease to understand how VAT impacts their transaction.

VAT on Other Forms of Farm Buildings 

If a farmhouse is situated in agricultural land and doesn’t satisfy the conditions of a residential building, it would be treated as a commercial building. Such farmhouses used as commercial buildings will be subjected to VAT at the standard rate of 5%. The following are some examples of farmhouses used as commercial buildings:

  1. Farmhouses are used as a non-principal place of residence of a person ( such as for weekend stays)
  2. Buildings used for commercial farm-related purposes such as barns, livestock sheds, granaries, stables etc.

VAT Treatment of Farmlands in the UAE 

As per the VATP008 Guide, farmland used for commercial purposes is subject to the standard VAT rate. Agriculture land is considered commercial farmland if it is covered with buildings or civil engineering works that are required for farming operations. For example, commercial farmland will be usually covered with irrigation systems, roads, utility connections which make it eligible for the standard VAT rating.

A land that is not used for commercial farming activities but used for private farming purposes such as growing crops, grazing for cattle will also be considered as commercial farmland if it is covered with fully finished or partially finished buildings or civil engineering works. Such farmlands will be subjected to the standard VAT rate.

VAT on Non-commercial Farmland in the UAE 

Non-commercial farmlands are exempt from VAT as per the VATP008 Guide. To determine if the land will be considered as non-commercial farmland, one has to assess if it meets the conditions of bare land. A land that is not covered with any infrastructure or civil engineering works is bare land or non-commercial farmland and is expect from VAT.

If the land is developed or worked for growing crops but not covered with any buildings or civil engineering works for facilitating the activity, then it should be considered as bare land. In such cases, the supply of the land either as a sale or lease would be exempt from VAT. VAT consultants in Dubai can help the investors or landowners to determine the accurate VAT rating of a farmland sale or lease.

How to Determine VAT Rating During a Sale or Lease of Farmland / Farmhouse? 

Determining the VAT treatment of a farm that is comprised of commercial land, commercial buildings and residential buildings can be complex for the investors or owners. In such cases, one has to determine whether it is a single composite supply or a mixed supply. Single composite supplies would be subject to VAT liability of the principal component while in the case of a mixed supply individual components are subjected to different VAT treatments.

As per the VATP008 Guide, each case has to be considered on a case by case basis to determine the correct VAT liability.

  1. If a farmhouse is used as the principal residence of a person’s family, the predominant purpose is the supply of a residential building and therefore is exempt from VAT
  2. If a commercial farm has a residential building that is used as the permanent accommodation of the farm manager and family, the commercial purpose will be a principal component and will be subjected to the standard VAT rate

Why the Assistance of VAT Consultants in Dubai is Essential? 

As detailed in this blog, investors or owners need to factor in the VAT impact while trying to sell or lease their farms. They need to determine whether it is a single composite supply or a mixed supply to understand the accurate VAT treatment. Wrongly determining the VAT treatment may lead to noncompliance with the UAE VAT Law, resulting in hefty penalties from the FTA. Seeking the advice of the best VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) will come in handy in such a situation.

JCA’s qualified tax agents in the UAE can help investors or farm owners determine accurate tax ratings and ensure VAT compliance. JCA is one of the most experienced firms offering reliable VAT consultancy services in Dubai. We are one of the few VAT consultancy firms in Dubai providing all VAT-related services such as VAT registration, VAT returns filing and VAT penalty appeal services. Consult with JCA as soon as possible to resolve all VAT-related issues at affordable charges.