The UAE’s real estate sector supports a large number of livelihoods and provides the necessary infrastructure, commercial and residential space that are vital to the country’s development. Let us understand the meaning of real estate and how real estate supply is treated in the UAE under VAT.
What is real estate?
Real estate is generally considered to be a property consisting of land or buildings, including:
1. Any land where rights or rights or services can be established
2. Any building, structure or project permanently fixed on the land
3. Any fixture or equipment that forms a permanent part of the land or is permanently attached to a building, structure or project
What is the real estate supply in the UAE?
According to the UAE VAT, the supply of real estate is considered a supply of goods. Therefore, the supply of real property includes the transfer of ownership or use rights of real property to others.
For example: selling residential buildings, leasing commercial properties, selling charity buildings, and selling bare land are all examples of real estate supply.
It can also provide services directly related to real estate. This is the case when the service is directly connected to real estate or the supply involves granting the right to use the real estate.
For example: the provision of interior decoration services, construction services, etc. is the provision of services related to real estate.
VAT liability for real estate supply
Real estate supply can be divided into the following categories:
One kind. Supply of 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. For charity organizations to use for related charitable activities or
3. Bare land
The supply of commercial properties shall be subject to value-added tax at the standard rate of 5%.
To learn more about VAT on the supply of commercial housing, please refer to our article “VAT on the supply of commercial housing”.
b. Supply of residential property
Residential buildings are buildings designed for human occupation.
The first supply of residential buildings will be zero-rated under the UAE’s value-added tax. However, the condition for this is that the first supply should be made within 3 years from the date of completion of the building.
After the first supply, any subsequent supply of residential buildings is exempt from VAT. Please note that even if subsequent replenishment occurs within 3 years after the building is completed, VAT will be exempted.
To learn more about VAT on the supply of residential properties, please refer to our article “VAT on the supply of residential properties”.
C. Supply for mixed use development
Mixed-use development projects refer to clear and distinct areas on buildings or land. These areas are allocated to different uses and are subject to different value-added tax treatments when they are provided.
If different parts of a mixed-use development are provided, the VAT obligation provided depends on the purpose of the specific part of the building.
If the part of the supply is used for commercial purposes, the supply shall be taxed at a rate of 5%, and if the part is used for residential purposes, it is necessary to check whether the supply is the first supply or the subsequent supply. If this is the first supply of the property within 3 years from the date of completion, the supply will be level zero. If the supply is a subsequent supply, the supply is exempt from VAT.
To learn more about the VAT on the supply of mixed-use development projects, please see our article “VAT on the supply of mixed-use development projects”.
d. Bare ground supply
The term “land” refers to any area on the surface of the earth, including any trees, plants or natural objects within, below or above it. Bare land refers to unfinished buildings, unfinished buildings or land that cannot be covered by civil engineering.
Supply of bare land is exempt from VAT.
If the piece of land supplied is not “bare land”, it will be regarded as commercial land, and the supplied land will be subject to value-added tax at the standard rate of 5%.
To learn more about VAT on vacant land supply, please refer to our article “VAT on vacant land supply”.
e. Supply of charity buildings
A charitable building refers to any building or any part of a building exclusively used by charitable organizations for related charitable activities.
If the initial supply of a building or any part of a building is specifically designed for charity and is only used for related charitable activities, the zero supply of the building is zero.
Subsequent supply of charity buildings will be subject to value-added tax at the standard rate of 5%.
Therefore, according to UAE VAT, the supply of real estate can be of many types, each of which is taxed in a different way. Those engaged in the real estate industry should pay attention to these regulations to ensure proper compliance with UAE VAT regulations.