VAT Treatment of the Real Estate Sector
Definition of Real Estate
Real estate includes land, buildings, structures, and engineering works permanently attached to the land. A real estate supply refers to the transfer of ownership, usage rights, or benefit to another party, including both sales and leases.
Real Estate Categories and VAT Treatment
| Type of Property / Supply | VAT Treatment |
|---|---|
| Commercial Property (Sale/Lease) | Subject to 5% VAT |
| First Supply of a New Residential Building | Subject to 0% VAT |
| Existing Residential Buildings (Sale/Lease) | Exempt from VAT |
| Bare Land | Exempt from VAT |
| Developed Land (with buildings or civil works) | Subject to 5% VAT |
| Charitable Buildings (First Supply) | Subject to 0% VAT |
| Charitable Buildings (Subsequent Supply) | Subject to 5% VAT |
| Properties in Designated Zones | Outside the scope of VAT |
Residential Supplies
Residential buildings include personal residences, student accommodations, military housing, and care homes.
- First supply must occur within 3 years of completion and is zero-rated (0%).
- Subsequent supplies are exempt from VAT.
- Labor accommodations are treated as residential buildings if they meet legal criteria and serve as primary residences.
Land
- Bare land is exempt from VAT.
- Land with civil works or development is subject to 5% VAT.
- Leasing land for development may change from exempt to taxable based on the land’s status at the time of supply.
Mixed-Use Properties
Properties with both commercial and residential components must be treated separately for VAT purposes:
- Commercial portion: 5% VAT
- Residential portion: 0% or exempt depending on supply type
Owners’ Associations
- Required to register for VAT if their taxable supplies exceed the threshold.
- Service charges collected by the association are subject to 5% VAT.
Infrastructure Development
- Input VAT on infrastructure-related costs is recoverable if the related supplies are taxable.
- Apportionment must be applied when both taxable and exempt supplies are present.
Transactions Between Landlord and Tenant
- Incentives paid to tenants: Taxable if in exchange for a service.
- Rent-free periods: Exempt if not provided in return for any obligation from the tenant.
- Lease assignment: Subject to 5% VAT.
- Payments for property damage: May be taxable or outside the VAT scope depending on their nature.
