VAT ON REAL ESTATE (PART TWO) CHARITABLE BUILDINGS & BARE LAND

VAT ON REAL ESTATE (PART TWO) CHARITABLE BUILDINGS & BARE LAND

INTRODUCTION TO CHARITABLE BUILDINGS :

  • ♦ Any building, or any part of a building, that is specifically designed to be used by a charity and solely for a relevant charitable activity
  • ♦ It does not aim to make a profit
  • ♦ It is a society or association of public welfare
  • ♦ Only those charities which are listed in a decision of the cabinet regarding Designated Charitable Bodies shall be eligible to use a building for a relevant charitable activity

 

FIRST SUPPLY OF A CHARITABLE BUILDING :

  • ♦ It is zero-rated if the building was specifically designed to be used by a Charity and solely for a relevant charitable activity
  • ♦ It includes a supply of the building by either sale or lease
  • ♦ There is no time limit from the date of completion during which the first supply must be made in order to qualify for zero-rating
  • ♦ Where a taxable person incurs the costs of constructing a charitable building, all of the VAT incurred on the costs of such development shall be recoverable in full on the basis that the costs relate to the zero-rated first supply.

 

SUBSEQUENT SUPPLIES OF CHARITABLE BUILDINGS :

  • ♦ It is subject to VAT at the standard rate
  • ♦ This is on the basis that the building is then considered to be for commercial purposes

 

RELEVANT CHARITABLE ACTIVITY :

  • ♦ It is undertaken for furtherance of its charitable purpose or objectives to carry out a charitable activity in the U.A.E, as approved or licensed by authority to operate as a charity
  • ♦ It is not for the purpose of profit or benefit to any proprietor, member, or shareholder of the charity

 

INTRODUCTION TO BARE LAND :

  • ♦ It is a land which is not covered by either completed, partially completed buildings or civil engineering works
  • ♦ Where a plot of land is covered only by natural objects such as natural trees and natural plants, this will be considered bare land for VAT purposes.

 

 

VAT LIABILITY OF BARE LAND :

  • ♦ It is exempt from VAT.
  • ♦ This includes the supply by either lease or by sale
  • ♦ Any VAT on costs associated with the supply of bare land e.g. legal fees or agent’s fees, shall not be recoverable by the supplier

 

OTHER INFORMATION :

  • ♦ Construction would be considered to be sufficient enough to represent a partially completed building when the stage of the construction has progressed beyond foundation level.
  • ♦ Where a plot of land has been fenced to allow construction to commence, the erection of the fence itself will not cause the land to be considered covered by buildings or civil engineering works

 

LAND COVERED BY CIVIL ENGINEERING WORKS :

  • ♦ Land will not be considered to be “bare land” where it is covered by civil engineering works which are complete, or partially complete

 

Examples of civil engineering works include roads, bridges, and pipes used for mains water or power services

  • ♦ Land will be considered to be bare land where there are civil engineering works which run underneath the land, but which do not break the ground surface of the land and to which the land carries no right of access

 

For example, an area of land which has water pipes running underneath it, but do not offer any water connection to the specific plot of land

  • ♦ Conversely, a plot of land which has pipes above the surface for the purposes of allowing future developments on the land to be connected to the mains water or power supply would cause the land to be considered “covered” by civil engineering works and therefore would be subject to VAT at the standard rate when supplied
  • ♦ Land which has the benefit of civil engineering works in the vicinity of the land, but not directly on the plot of land being supplied, shall not be considered to be covered by civil engineering works

 

For example a master developer may prepare a number of plots of land for sale, which could involve the installation of connections to the water or power mains within the communal infrastructure of the development

 

INTRODUCTION TO FARM LAND :

 

  • ♦ It will be considered to be commercial land as it will normally be covered with infrastructure or civil engineering works required to make it operational as a farm

 

e.g. irrigation systems, roads, utility connections etc.

 

LEASING BARE LAND FOR DEVELOPMENT :

  • ♦ Where the landlord is making a supply of bare land – Exempt
  • ♦ Where the landlord is not making a supply of bare land- standard rate
  • ♦ When a landlord supplies land to a tenant which meets the definition of “bare land” at the point it is first leased to the tenant, however once the tenant begins to develop on the land then the nature of the landlord’s supply will change
  • ♦ From the point the land ceases to be bare land, the landlord should charge VAT at the standard rate to the tenant

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