It is common to have homeowners associations in residential buildings. These homeowners’ associations collect money from the owners of various units within the property to maintain the building’s maintenance. Let us understand the applicability of VAT in the UAE Homeowners Association.
What is a homeowners association?
Owners Associations (OA’s) are usually established to manage and manage the common areas of the building on behalf of all owners of the building. They usually deal with issues such as cleaning, maintenance, safety, etc., and are usually composed of the owners of each unit itself. Office automation is usually responsible for purchasing the services needed to maintain the property, and collect payments from the owners of various units in the property to pay the contractor’s fees or to fund large-scale renovation projects.
OAs are usually non-profit organizations or associations, but they can take many different legal forms. They are usually not merged legal entities, but:
1. Legal partnership between members
2. An association with legal status, based on the relevant common property or
3. Unincorporated groups or associations without legal personality/identity
Does a homeowner’s association need to be registered in order to apply for VAT?
In any of the following cases, owners’ associations are required to register for VAT:
1. It exercises any form of control, management, and management of public domains, including handling issues such as maintenance, security, rule enforcement, the general welfare of tenants, financial management, and contact with legal authorities
2. Have a legal personality different from that of its members, for example, a place where it is registered under the law on common property and constitutes a formal partnership, etc.
3. Engage in economic activities
4. If the entity is registered for VAT, the supply should be taxable
5. Its taxable turnover exceeds the mandatory registration threshold (or meets the conditions for voluntary VAT registration). To learn more about the registration threshold under VAT, please refer to our article “Calculation of Threshold Under VAT Registration”.
Owners Association VAT
The VAT liability for the supplies provided by the owners’ association may vary, depending on the nature of the supplies provided by OA.
If OA is engaged in economic activities and has the ability to register for VAT, any service fee charged by OA shall be subject to 5% VAT. Since value-added tax is charged on service fees, OA should have the right to recover any value-added tax incurred from services purchased from third parties for building maintenance.
Therefore, if the owners’ association meets the prescribed conditions, it must be registered under the value-added tax. If the owners’ association is registered for value-added tax, any service fees they charge to the owners of each unit within the premises are subject to 5% value-added tax. They will also be allowed to recover the value added tax paid for the expenses incurred in repairing the building.