Residential property sales, leases, bare land will be exempt from VAT in the UAE

With effect from January 1, 2018, valued added tax (VAT) will be a reality in the UAE. As the real estate sector affects most expat lives in the UAE, let us take a look at the implications of the new levy on this industry.

• Commercial property (sales and leases): will be subject to the standard rate of VAT (five per cent) Residential property (sales and leases): will be exempt from VAT, with the exception of the first sale of 
• New residential property: which will be subject to the zero rate of VAT
• Bare land: will be exempt from VAT.

"From a consumer perspective, a zero-rated and exempt product mean the same thing, i.e., no VAT will be charged. However, the difference is that if a business sells or supplies zero rated goods/services, it can claim the input tax credit it has paid on its purchases. While if the business sells or supplies exempt goods/services, it cannot claim the input tax credit that it has paid. As a result, for a business that sells or supplies exempt goods/services, VAT will have to be borne by that business as a cost and cannot be passed on to the end consumer,"

A company in the UAE that offers a zero-rated good or service needs to register with the Federal Tax Authority (FTA).

A zero-rated supply is charged to the customer at a rate of zero per cent and this needs to be stated on an invoice. Zero-rated also means that the input VAT a firm pays for its supplies - such as inventory or utilities - can be recovered from the tax authority.