The supply tax for residential buildings in the UAE is based on whether the supply is the first supply or subsequent supply. Let us understand the meaning of the term “residential construction” and the VAT treatment of residential construction supplies.
Residential buildings are buildings designed for human occupation. This includes:
1. Any building or part of a building in which a person lives, or a building or building where the person is expected to live
2. Accommodation for students or current students
3. The residence of the armed forces and police
4. Orphanages, nursing homes and nursing homes
Residential buildings are not:
1. Any place that is not fixed on the ground and can be moved without damage, such as mobile homes
2. Any building used as a hotel, motel, bed and breakfast or hospital
3. Serviced apartments provide other services in addition to accommodation
4. Any building constructed or modified without legal authorization
Note: If a small part of the building is used by the occupants as an office or work space, contains garages and gardens used with the property, or contains any functions that may be related to the building, it is still considered to be a residential building Part of the building.
First supply of residential buildings
The “first supply” of residential buildings includes the supply of buildings provided through sale or lease. 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. Since the first supply of residential buildings is at zero tax rate, the value-added tax related to the first supply of buildings can be fully recovered.
Please note that this has nothing to do with the supply object of the building (registered person, non-registered person, related party, etc.). The important thing to ensure here is that it should be delivered for the first time within 3 years after the building is completed.
What is the completion date?
The completion date of the building is:
One kind. The date of completion of the building certified by an appropriate qualified agency or
b. The building’s move-in date, whichever is earlier
Subsequent supplies for residential buildings
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.
Since the subsequent supply of residential buildings is exempt from VAT, the VAT paid by the supplier for expenses related to the subsequent supply will not be eligible for input tax deduction.
For example: agency fees, expenses related to the general maintenance and maintenance of the property, and the value-added tax generated by subsequent supplies, etc., will not be eligible for input tax deduction.
Therefore, the VAT treatment of residential buildings depends on whether the supply is the first supply or the subsequent supply. If the supply is the first supplier of a residential building (completed within 3 years after the building is completed), it has a zero rating. However, if the supply is a follow-up supply of residential construction, it will be exempt from VAT even if the supply is made within three years after the completion of the construction.