FAQ on VAT and Real Estate Business

What is a residential building for VAT purposes?

A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:

Any place that is not a building fixed to the ground and can be moved without being damaged.

Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.

A serviced apartment for which services in addition to the supply of accommodation are provided.

Any building constructed or converted without lawful authority.

What is a commercial building for VAT purposes?

A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.

What is a supply in relation to real estate?

A supply of real estate may include the sale, lease or giving the right in any real estate.

Is a residential building subject to VAT?

The first supply of a new residential building within the first three years of it being constructed is zero-rated. All subsequent supplies are exempt, even if within the first three years.

Is commercial real estate subject to VAT?

All supplies of commercial properties are subject to VAT at 5%, and this includes all buildings or parts thereof that are not residential buildings.

Does the owner of real estate have to register for VAT?

The owners of residential buildings who only make exempt supplies do not have to register for VAT if they do not have any taxable business activities. Where owners have taxable business activities, they should consider their obligations further.

The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over the coming 30 days.

Can a real estate owner recover VAT paid in relation to real estate?

An owner of a residential building is not able to recover VAT in respect of expenses related to the exempt supply of the residential building.

An owner of a commercial building is generally able to recover VAT in respect of expenses related to the supply of the commercial building.

How is a mixed-use building (residential and commercial) treated for VAT purposes?

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 within the first three years of completion of construction or a subsequent supply.

The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.

Tax that cannot be directly attributed to exempt supplies or taxable supplies should be apportioned, and only the portion relating to the taxable supplies (at 0% and 5%) may be recovered.

Will VAT be charged on the property I am renting?

The rent of a residential building will generally be exempt from VAT.

The rent of a commercial building will be subject to VAT at 5%

Need more clarifications and tax planning aspects?

Corplans Global with its experts team in VAT on real estate can guide you properly.