VAT ON REAL ESTATE (PART THREE) COMMERCIAL REAL ESTATE, MIXED USE DEVELOPMENTS & OWNERS ASSOCIATION

VAT ON REAL ESTATE (PART THREE) COMMERCIAL REAL ESTATE, MIXED USE DEVELOPMENTS & OWNERS ASSOCIATION

  1. 1.COMMERCIAL REAL ESTATE :

 

INTRODUCTION :

 

Commercial real estate is any land or buildings, which are not one of the following :

  • ♣ A building designed as a residential building or number of residential buildings
  • ♣ A building intended for use by a charity for a relevant charitable activity
  • ♣ Bare land

 

 

 

VAT APPLICABILITY :

 

  • ♣ VAT at standard rate of 5% applicable
  • ♣ It includes supply by way of sale or lease
  • ♣ VAT is applicable on the total consideration received for the supply of commercial real estate
  • ♣ Where the consideration for the supply is payable by instalment, VAT will be applicable to each instalment paid
  • ♣ Any VAT on costs incurred in relation to the supply shall be recoverable in full

 

CANCELLED DEVELOPMENTS :

 

Where a supplier accepts full or partial payment in relation to a supply of real estate and the supply is subsequently cancelled, the supplier will be required to refund the money paid to the customer as follows:

  • ♣ The supplier should issue a tax credit note to the customer in order to refund the consideration previously paid in respect of the supply
  • ♣ The tax credit note will have the effect of reversing the output tax which the supplier will have originally accounted for on the receipt of the payment
  • ♣ In the event the supplier is not required to refund the amount paid to the customer, it will be necessary for the supplier to establish the reason he is entitled to retain the money in order to determine the VAT treatment.
  • ♣ Where the retained payment is treated as consideration for a supply of services by the supplier, it will remain subject to VAT at the standard rate and there will not be a requirement for the supplier to issue a tax credit note

 

PAYMENT OF VAT ON SALES OF COMMERCIAL REAL ESTATE :

 

  • ♣ The special payment process applies only in the case where commercial real estate is sold in the UAE by any supplier other than the developer of that property, and would be subject to VAT at 5%
  • ♣ The seller of the property will issue a tax invoice to the buyer in relation to the sale proceeds of the property as normal
  • ♣ Before completing the ownership transfer process with the Land Department, the buyer of the commercial property will be required to pay the VAT due on the purchase directly to the FTA
  • ♣ Once the payment of the VAT has been made to the FTA, the buyer will receive a Payment Transaction Number
  • ♣ The buyer will be required to produce the Payment Transaction Number to the Land Department in order to process the ownership transfer.
  • ♣ The supplier will declare the output tax due on the property within its VAT return in the normal way, and will then also include the value of the output tax in the adjustments column of the return. This will avoid paying the output tax to the FTA twice

 

 

 

 

  1. 2.MIXED USE DEVELOPMENT :

  INTRODUCTION :

 

  • ♣ It is a building or plot of land which has clear and distinct areas which are put to different uses which would have a different VAT treatment when supplied
  • ♣ For example, a building which has retail units on the ground floor level, office or commercial space on the middle floors of the building and residential units on the top floor
  • ♣ The VAT liability applicable to the supply shall depend on the use of the part of the building which is being supplied
  • ♣ Where a mixed use development is sold in its entirety, it shall be necessary to apportion the consideration received between the different parts of the building.

 

VAT RECOVERY ON REPAIR & MAINTAINANCE COST :

 

To determine the input tax that could be recoverable, the taxable person shall apportion his input tax as follows:

 

  1. 1. Input Tax that relates wholly to supplies where input tax is recoverable (e.g. taxable supplies), is recoverable in full
  2. 2. Input Tax that relates wholly to supplies where the input tax is non recoverable (e.g. exempt and non-business supplies), is blocked in full
  3. 3. Input tax that cannot be allocated under 1 or 2 above (e.g. roof repairs) must be apportioned

 

 

 

  1. 3.OWNERS ASSOCIATION :

INTRODUCTION :

 

  1. 1. They are often established to manage and administer the common areas of a building on behalf of all of the owners of a building
  2. 2. They commonly deal with issues such as cleaning, maintenance, security etc. and are often comprised of members which are the owners of the individual units themselves
  3. 3. They are responsible for the procurement of services required to maintain the upkeep of the property and collect money from all of the owners of the individual units within a property in order to pay the expenses of contractors or fund major refurbishment works
  4. 4. They are not normally incorporated legal entities, but instead they could be :
  • ♣ A legal partnership between the members
  • ♣ An association with legal status, registered under laws concerning joint property ownership
  • ♣ An unincorporated group or association with no legal personality/status

 

CONDITIONS FOR APPLICABILITY FOR VAT REGISTRATION :

 

  • ♣ It exercises any form of control, management and administers the common areas, including dealing with issues such as maintenance, security, rule enforcement, general well-being of tenants, financial management and engagement with statutory authorities
  • ♣ It has a legal personality distinct from its members

e.g. where it is registered under laws concerning joint property ownership and is constituted as a formal partnership etc.

  • ♣ It undertakes an economic activity
  • ♣ It makes supplies which would be taxable supplies if the entity were registered for VAT
  • ♣ Its taxable turnover exceeds the mandatory registration threshold or it meets the conditions to register for VAT voluntarily

 

VAT TREATMENT OF SUPPLIES MADE BY OWNERS ASSOCIATION :

 

  • ♣ If OA is conducting an economic activity and has the ability to register for VAT, any service charges made by the OA should be subject to VAT at 5%
  • ♣ As a result OA has the right to recover any VAT incurred on services it purchases from third parties for the purposes of maintaining the building

 

 

 

 

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