VAT Impact on Change in the Permitted Use of a Building, UAE

VAT Impact on Change in the Permitted Use of a Building, UAE

The real estate sector is one of the most prominent sectors in the UAE. The residential type of supplies is significant in this industry. However, the real estate industry also involves other mixed nature of lease and sale agreements which can be complex for VAT treatments. These supplies involve building sales or leases, and it is one of the most frequent types of transactions in the market. However, one significant issue is determining appropriate VAT treatments. Companies must have the correct VAT registration in UAE and must also be aware of its implications. If you are changing the use of the building, there will be VAT implications, and you must know about the precise treatments to manage the issue. In this article, we will look at the impact of VAT calculations for the changes in the permitted use of buildings and how organizations can manage it.

What Factors Are Considered on Determining VAT When Selling A Building?

When determining the VAT treatment on a building for sale, the use of the building on the date of supply plays a pivotal role. The building is considered an invisible good this is why the current usage is taken into account at the moment of sale. The standard rate of tax will depend on the nature of the building. Thus, if the building is considered commercial on the date of supply, the tax will be charged per commercial rate. However, the changes will be different if the building is residential. If you are unsure about the VAT rate, you should enlist the help of a professional company that offers VAT services in the UAE. They will help you determine the tax charges and allow you to be prepared for the expense in advance.

Step To Identify A Residential Building

Residential buildings are used or meant to be used by a person as their place of residence. Thus, if someone has bought a building for residential purposes, it is considered a residential property. However, the VAT regulations exclude hotels, motels, bed and breakfasts, and hotel apartments from this criteria. Even though these places are for residential purpose, it is not necessarily used by one person. These places are used by guests, and this is why the VAT treatment of such buildings is different. Thus, if you need to determine the VAT treatment and tax charges for your property, you will need a professional company that offers its VAT services in UAE. They can assist you with the registration process along with the VAT treatment as well.

Don’t Forget About These Steps To Determine The Date Of Supply For The Sale Of A Building

The date of the sale of a building is integral during the sale process. It is the earliest date among the following. Thus, organizations must choose the earliest time to determine the date of the supply of the building.

  • The date on which the purchases received the possession of the building.
  • The date when the tax invoice is issued for the sale.
  • Date when the ownership is transferred (in most cases, it is the registration date)
  • The date when the seller receives the payment for the sale.

Whichever comes first is considered as the date of the supply for the sale of a building.

The Possible VAT Treatments On Supply Of A Building in UAE

A trusted company can help you with the process of VAT registration in the UAE, and also allow you to determine the accurate VAT treatment as well. Since the VAT treatment depends on several factors, it is better to enlist the help of a professional. A sale or the lease can be a standard rate, a zero rate, or maybe fully exempt depending on the nature of its use and date of supply. Thus, it is integral to consider both of these factors to understand the impact of VAT. The residential buildings are zero-rated on their first supply within three years of construction. Afterward, the lease or sale of the building will be exempted from VAT. In the case of a commercial property, the building will be taxable at a standard rate of 5% on both lease and sale.

Final Words

VAT is mandatory on all building supplies. Thus, determining the correct impact allows you to calculate the correct tax charges and file taxes on time. Several trusted accounting companies offer their services that will assist you with VAT treatment and calculation. HALSCA is among the top companies that provide trusted VAT services in the UAE. Take a look at their services, or get in touch with their expert team by contacting them at

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