The UAE’s Federal Tax Authority (FTA) has clarified that commercial real estate will be subject to the five percent value added tax (VAT), with residential units largely exempt.
In a statement, the FTA noted that the first supply of a new residential building within the first three years following its construction will be zero-rated. Subsequently, all supplies will be exempt, even within the first three years.
All commercial properties, however, are subject to the 5 percent VAT.
FTA added that the owners of residential buildings do not need to register for VAT if they have no other business activities. Those who do, however, are advised to check whether they are required to register or not.
Owners of non-residential buildings are required to register if the value of supplies over the course of the preceding 12 months exceeds AED 375,000, or if the value is expected to exceed that figure in the next 30 days.
While owners of residential buildings will not be able to recover VAT on expenses related to the supply of exempt residential buildings, commercial building owners will generally be able to recover VAT on expenses.
For mixed use buildings, the rent and sale of residential portions of a building shall be treated as zero-rated or exempt – depending on whether it’s a first or subsequent supply – while the rent and sale of commercial parts of the building are subject to VAT.
The tax incurred by the owner of a mixed-us building needs to be apportioned where there is an exempt supply. The portion related to the taxable supply may be recovered.
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