Recently the Federal Tax Authority of the UAE (FTA) has published an updated «Real Estate VAT Guide» (VATGRE1) and a new document - Public Clarification on Changes in the Permitted Use of a Building (VATP018).
In the updated version of the Real Estate VAT Guide the following sections have been revised:
Section 3.6 on supply of employees accommodation in labour camps
Section 5.3 on stage of where it is considered to be a partially completed building
Section 5.6 on VAT treatment of Musataha agreements relating to the lease or bare land
Section 7.3 on VAT recovery of repair and maintenance costs
Section 8 now includes VAT obligation for Management Entities
Section 13.4 based on new process for submission of New Residence Refund Request
Public Clarification on Changes in the Permitted Use of a Building (VATP018)
The new document issued by the FTA summarises that the sale of a building constitutes the supply of a single indivisible good at the date of supply. If the purchaser subsequently changes the permitted use of the building, it does not impact on the VAT treatment of the preceding sale. Where a building was sold as a serviced/hotel apartment and the purchaser subsequently change the permitted use of the building to residential use only, the preceding sale will remain subject 5% VAT whereas the purchaser should not account for VAT on the subsequent exempt supply. If a building was sold as a residential building but the permitted use is subsequently changed to use as a serviced/hotel apartment, the VAT treatment of the original sale will remain the same regardless of the purchaser’s subsequent use of the building, i.e. exempt from VAT, except if it was the first supply of the building, in which case the supply may be zero-rated. After the permitted use is changed, the purchaser will have to account for 5% VAT on the supply of the building to a third party if the purchaser is a taxable person.
Find the full versions of the documents on the links below: