VAT ON REAL ESTATE PART FOUR SUPPLIES BETWEEN LANDLORDS & TENANTS & VAT REFUND FOR NEW RESIDENCES

VAT ON REAL ESTATE PART FOUR SUPPLIES BETWEEN LANDLORDS & TENANTS & VAT REFUND FOR NEW RESIDENCES

 

 

SUPPLIES BETWEEN LANDLORDS & TENANTS

 

INDUCEMENTS :

 

• ♦ Where a landlord pays a prospective tenant to enter into a lease, the tenant is considered to be making a supply to the landlord of agreeing to enter into a contract
• ♦ If the tenant is registered for VAT then their services shall be subject to VAT at 5%, regardless of whether the property is a commercial or residential property
• ♦ Where the prospective tenant is not VAT registered any inducement paid by the landlord is outside the scope of VAT.
• ♦ Any inducements paid by a tenant to a third party to accept the assignment of a lease is not consideration for the assignment or grant, but is a standard-rated supply of services by the third party.

 

 

RENT FREE PERIODS :

 

• ♦ Where the landlord grants a rent free period in return for no consideration, the rent free period does not normally constitute a supply for VAT purposes
• ♦ If a tenant undertakes to provide anything to the landlord in return for the rent free period, this would represent a barter transaction

 

For example, a landlord may grant a rent free period to a tenant in return for the tenant agreeing to refurbish the property

 

• ♦ Where VAT is charged on the value of the barter transaction this would be recoverable subject to the normal rules

 

 

LEASE SURRENDER :

 

• ♦ If a landlord pays a tenant to surrender any interest in, right over or license to occupy land, then that is a supply to the landlord by the tenant
• ♦ The tenant is considered to be making a supply of agreeing to exit the lease early
• ♦ If the tenant is registered for VAT then their services shall be subject to VAT at 5%

 

 

LEASE VARIATION :

 

• ♦ Variations to leases may simply alter one or more of the terms, such as permitting the building to be used for a purpose that was originally prohibited
• ♦ Where there is a more fundamental change to the lease, the old lease is treated as surrendered and a new lease granted in its place
• ♦ Any consideration the landlord receives for any type of lease variation is taxable at 5% on the basis that the landlord is making a supply of agreeing to vary the lease terms

 

 

DILAPIDATION PAYMENTS :

 

• ♦ The terms of a lease may provide for the landlord to recover from tenants, at or near the termination of the lease, an amount to cover the cost of restoring the property to its original condition
• ♦ The amount is often agreed between the parties and may be based on a surveyor or contractor’s estimate
• ♦ Depending on the terms of the contract, dilapidation payments which are paid as damages or for breach of contract relating to a requirement to properly maintain the property may be considered to be outside the scope of VAT.
• ♦ If the dilapidation payment represents consideration for repairs and maintenance works which should have been undertaken over the life of the lease by the tenant and which will be undertaken by the landlord, the payment involved is subject to VAT at 5%

 

NOTE : Simple contributions to tenants’ costs do not constitute a supply by the tenant to the landlord unless there is a contractual obligation for the tenant to do something in return for the contribution received.

 

VAT REFUND FOR NEW RESIDENCES

 

AVAILABILITY OF VAT REFUND :

 

• ♦ Where a U.A.E citizen owns or acquires land in the U.A.E on which the person builds or commissions the construction of his own residence, he shall be entitled to make a claim to the F.T.A to repay the VAT on the expenses of constructing the residence
• ♦ The claim may only be made by a natural person who is a U.A.E national

 

 

CONDITIONS FOR SPECIAL VAT REFUND :

 

• ♦ The claim may only be made by a natural person who is a U.A.E national
• ♦ The claim must relate to a newly constructed building to be used solely as the residence of the person or the person’s family
• ♦ The claim may not be made in connection with a building that will not be used solely as a residence by the person or the person’s family

 

For example if it is to be used as a hotel, guest house, hospital or for any other purpose not consistent with it being used as a residence

 

• ♦ The refund claim must be lodged with the F.T.A within 6 months from the date of completion of the newly built residence

 

 

COSTS ELIGIBLE TO BE REFUNDED :

 

• ♦ Services provided by contractors, including the services of builders, architects, engineers and other similar services necessary for the successful construction of the residence
• ♦ Building materials, being goods of a type normally incorporated by builders in a residential building or its site, but not including furniture or electrical appliances

 

Examples of goods which are not considered to be incorporated into the building include :

• ♦ Appliances
• ♦ Furniture which is not fixed into the building such as sofas, tables
• ♦ Landscaping, such as trees, grass and plants

 

Examples of goods which are considered to be incorporated into the building and would be eligible for a refund of VAT include:

 

• ♦ Central Air conditioning
• ♦ Doors, Flooring (excluding carpets)
• ♦ Fire alarms and smoke detectors
• ♦ Kitchen sinks, work surfaces and fitted cupboards
• ♦ Sanitary ware, Shower units
• ♦ Window frames and glazing
• ♦ Wiring when embedded inside the structure of the building

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