Real estate value-added tax can be divided into the supply of residential properties, commercial properties, mixed-use development projects, bare land and charity buildings. In our previous article “VAT on the Supply of Residential Property”, we learned about the treatment of VAT on the supply of residential property. Likewise, let us understand the meaning of UAE commercial property and value-added tax.

What is commercial property?

Commercial property refers to any of the following types of land or buildings:

1. The number of buildings or residential buildings designed as residential buildings or

2. To be used by charitable organizations for related charitable activities or

3. Bare land

Commercial property supply VAT

The supply of commercial properties shall be subject to value-added tax at the standard rate of 5%. Here, the supply of commercial property includes through sale or lease. Therefore, VAT applies to the consideration received for the provision of commercial property.

If the consideration of commercial properties is paid in installments, VAT will apply to each installment. Since the supply of commercial property is a taxable supply, the value-added tax paid for the cost of the supply can be fully recovered.

Supply of commercial housing value-added tax

The supplier will collect value-added tax on the following types of commercial property supply and pay it to the FTA as usual:

1. Commercial property lease

2. Real estate developers sell commercial real estate

3. Selling commercial property to the buyer of the taxable person in the interest of the current lessee is eligible for the transfer of business

In this case, the supplier will collect VAT, report it in the relevant VAT declaration and pay it to the free trade zone.

The special payment process only applies when commercial real estate is sold in the UAE by any supplier other than the developer. When commercial real estate is sold by a supplier other than the developer, the steps to be followed to pay VAT on commercial real estate are:

One kind. The seller of the property will issue a tax invoice to the buyer for the normal sale of the property.

b. Before completing the ownership transfer process with the Land Bureau, purchasers of commercial real estate will be required to pay directly to the FTA the value-added tax payable at the time of purchase. In our article “How to pay VAT on commercial properties in the FTA portal”, the steps to pay VAT directly to the FTA are explained in detail.

C. Once the VAT is paid to the FTA, the buyer will receive a payment transaction number. The buyer will be required to show the payment transaction number to the Land Bureau to process the ownership transfer. If there is no evidence that the value added tax for the purchase has been paid, the property purchase cannot be made, which will cause delays.

d. The supplier will declare the output tax of the property receivable in the relevant VAT return in the usual way, and then include the value of the output tax in the adjustment column of the return. This will ensure that commercial real estate supply taxes are not paid twice to the FTA.

Therefore, the supply of commercial housing is subject to a 5% value-added tax. Since it is a taxable supply, the value-added tax paid for expenses related to the supply of commercial properties can be fully recovered. When commercial property is sold by a supplier other than the developer, the buyer must pay the value-added tax of the commercial property directly to the FTA. To learn more about VAT on real estate supply, please refer to our article “Real Estate VAT”.