VAT ON REAL ESTATE PART FIVE PLACE OF SUPPLY OF REAL ESTATE & CONSTRUCTION INDUSTRY

VAT ON REAL ESTATE PART FIVE PLACE OF SUPPLY OF REAL ESTATE & CONSTRUCTION INDUSTRY

 

PLACE OF SUPPLY OF REAL ESTATE :

 

  • ♦ Any real estate located in the U.A.E except property located in a Designated Zone is supplied in the U.A.E
  • ♦ It will be subject to U.A.E VAT

 

 

PLACE OF SUPPLY OF REAL ESTATE RELATED SERVICES :

1. The place of supply of the services is where the real estate is located

2. It will be subject to U.A.E VAT

3. A supply of services is deemed to relate to real estate where the supply of services is directly connected with the real estate, or where it is the grant of a right to use the real estate

4.  A supply of services directly connected with real estate includes:

  • ♦ The grant, assignment or surrender of any interest in or right over real estate
  • ♦ The grant, assignment or surrender of a personal right to be granted any interest in or right over real estate
  • ♦ The grant, assignment or surrender of a license to occupy land or any other contractual right exercisable over or in relation to real estate, including the provision, lease and rental of sleeping accommodation in a hotel or similar establishment
  • ♦ A supply of Services by real estate experts or estate agents
  • ♦ A supply of Services involving the preparation, coordination and performance of construction, destruction, maintenance, conversion and similar work
  • 5. Services which are not considered to be directly related to real estate shall be subject to the normal place of supply rules such as:
  • ♦ Secondment of staff to a building site
  • ♦ Advice or information relating to land or property markets
  • ♦ Drawing up plans for a building that does not relate to a specific site
  • ♦ Management of a property investment portfolio
  • ♦ The supply of storage of goods in a property without a right to a specific area for the exclusive use of that customer
  • ♦ Advertising services, including those that involve the use of a billboard
  • ♦ General legal advice on real estate related contracts
  • 6. If a land related service is provided alongside other services that don’t relate to land then :
  • ♦ If there is a single composite supply directly related to land, this treatment covers all the elements that make up the supply
  • ♦ If there are multiple supplies each will need to be considered on its own

 

NON – RESIDENT LANDLORDS :

  • ♦ Where a non-resident landlord makes any taxable supplies related to any real estate located in the U.A.E, they will be required to register, charge and account for VAT
  • ♦ It is not possible for non-resident landlords to make use of the reverse charge mechanism where their tenant is already VAT registered in the U.A.E
  • ♦ Where the real estate itself is sufficient enough to create a fixed establishment for the non-resident landlord, it shall be considered resident in the U.A.E and therefore subject to the mandatory registration threshold and eligible to be a member of a VAT group

 

REAL ESTATE WITHIN DESIGNATED ZONE :

  • ♦ It will be outside the scope of VAT
  • ♦ It will not be treated as being “consumed” when sold or leased within a Designated Zone to another business to be used by that business
  • ♦ The supply of services also includes the provision, lease and rental of sleeping accommodation in a hotel or similar establishment, services of real estate experts or estate agents, and construction and similar services
  • ♦ As a result, supplies of services related to real estate which are outlined above and performed in the Designated Zone will be liable to VAT at the standard rate.

 

CONSTRUCTION INDUSTRY :

 

VAT LIABILITY :

 

  • ♦ Subject to VAT at 5%
  • ♦ The VAT treatment will apply regardless of the type of building which is being constructed

 

DATE OF SUPPLY :

 

  1. 1. Earlier date of the following:
  • ♦ Receipt of payment;
  • ♦ Completion of the services; or
  • ♦ An invoice is issued in respect of the supply
  1. 2. Services which are supplied on a continuous or on-going basis over a period of time are often known as continuous supplies of services .For such cases, Earlier date of the following :
  • ♦ The date of issuance of any tax invoice;
  • ♦ The date payment is due as shown on the tax invoice
  • ♦ The date of receipt of payment.
  1. 3. In the event that 12 months has passed from the date of provision of the goods or services and none of the above events has occurred, a date of supply will be triggered at the 12-month point

 

NOTE :

 

  • ♦ The certification of a construction project at a particular point in time will not trigger the date of supply for VAT purposes
  • ♦ However, certification of a project is often linked to other obligations such as a due date for payment, which may itself trigger the date of supply

 

RETENTION PAYMENTS :

  1. 1. If the services are considered to have already been completed by the supplier, the date of supply will be triggered on the date the services were completed or on the date of issue of the tax invoice or receipt of payment if earlier
  2. 2. If the services are not contractually treated as completed until such time that the sign off is given by the recipient, then the date of supply will be delayed until the earlier of :
  • ♦ The time the retention payment has been made
  • ♦ The work has been signed off as complete or
  • ♦ The tax invoice has been issued.
  1. 3. Where retention payments become due for payment to the supplier after 1 January 2018 which relate to supplies of services which were completed prior to 1 January 2018, the payment received by the supplier should be outside the scope of VAT
  2. 4. Where a retention payment becomes due for payment to the supplier after 1 January 2018 and the supply is not considered to be completed until the retention is signed off, then VAT shall be applicable on the value of the retention payment received

 

 

SNAGGING :

 

  • ♦ It occurs when the customer is not happy with the standard of work provided by the builder
  • ♦ In many cases the customer will have held a retention payment in respect of the possible snags that may be identified in the course of construction
  • ♦ The builder will be asked to rectify the snag usually at their cost.
  • ♦ Where the original builder corrects the snags at his cost he will not receive any further consideration
  • ♦ The builder will not be required to account for VAT on the liability of the works undertaken
  • ♦ Where the customer uses a second supplier to correct the snags, or where the original supplier corrects the snags for an additional fee, there is an additional supply of services to the customer and VAT will be due on that supply

 

PARTIALLY COMPLETED BUILDINGS :

 

  • ♦ A building is normally considered complete on the date the building is certified as being complete by an appropriately qualified party
  • ♦ If the building is occupied before this date, the date on which the building is occupied shall be taken to be the date of completion
  • ♦ If a partly completed commercial building is sold prior to its completion, then supply will be standard-rated unless it qualifies to be treated as part of a transfer of a going concern
  • ♦ If a building does not exist at the time of the entry into the contract for sale, the position will depend on the terms of the contract.
  • ♦ As per Article 26(1) of the VAT Decree Law provides that the date of supply for any contract that includes periodic payments or consecutive invoices should be the earliest of the date of issuance of tax invoice, the date payment is due or the date of receipt of payment
  • ♦ Article 5(2) of the VAT Decree-Law provides that the entry into a contract between two parties which entails the transfer of goods at a later time is also treated as a supply of goods
  • ♦ Article 2(3) of the VAT Executive Regulations states that a contract should be treated as a supply of goods where the agreement stipulates a transfer or intention to transfer the ownership of goods or a future transfer of ownership of goods
  • ♦ Where there is a combination of a supply of goods and services, any service element is likely to be treated as a composite supply in which case the VAT treatment of the predominant supply would apply

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