Residential Buildings Subject to the Zero Rate VAT in the UAE

His Highness Shaikh Mohammad Bin Rashid Al Maktoum, the Vice-President and Prime Minister of the UAE and Ruler of Dubai, has approved the executive regulations of Federal Law No.8 of 2017 on Value Added Tax (VAT). The bylaws govern the implementation of the VAT, which will come into effect from January 2018.

The regulations define VAT as the 5 percent tax imposed on the import and supply of goods and services at each stage of production and distribution, including what is a deemed supply, with the exception of specific supplies subject to the zero rate and what is exempted as specified in the law

.Article (37) Residential buildings

1. The phrase “residential building” means a building intended and designed for human occupation, including:

a. Any building or part of a building that the person occupies, or that it can be foreseen that a person will occupy, as their principal place of residence.

b. Residential accommodation for students or school pupils.

c. Residential accommodation for armed forces and police.

d. Orphanages, nursing homes, and rest homes.

2. A “Residential building” does not include any of the following:

a. Any place that is not a building fixed to the ground and can be moved without being damaged.

b. Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.

c. A serviced apartment for which services in addition to the supply of accommodation are provided.

d. Any building constructed or converted without lawful authority.

3. A building shall be considered as a residential building if a small proportion of it is used as an office or workspace by the occupants if it includes garages and gardens used in conjunction with it, or it includes any other features that may be said to comprise part of the residential building.

Article (38) Zero-rating of Buildings Specifically Designed to be Used by Charities

1. The first sale or a lease of a building, or any part of a building, shall be zero-rated if the building was specifically designed to be used by a Charity and solely for a relevant charitable activity.

2. In Clause (1) of this Article, “relevant charitable activity” means an activity for the purpose other than for the purpose of profit or benefit to any proprietor, member, or shareholder of the Charity, and one which is undertaken by the Charity in the course or furtherance of its charitable purpose or objectives to carry out a charitable activity in the State as approved by the Ministry of Community Development, or under the conditions of its establishment as a charity under Federal or Emirate Decree, or as otherwise licensed to operate as a Charity by an agency of the Federal or Emirate Governments authorised to grant such licences.

Such charitable purposes and objectives include, for instance, advancing health, education, public welfare, religion, culture, science and similar activities.

Article (39) Zero-rating Converted Residential Building

1. The first supply of a building or any part of a building, which is converted to a residential building shall be subject to the zero rate provided that the supply takes place within 3 years of the completion of the conversion and the original building, or any part of it, was not used as a residential building and did not comprise part of a residential building within (5) five years prior to the conversion work commencing.

2. The presence of shared or common facilities, or dividing walls or similar features in a residential building should not cause the residential building to be considered or any part thereon as part of a pre-existing residential building.