Residential units exempt from VAT

ABU DHABI / WAM

The supply of commercial real estate, selling or leasing, will be subject to the Value-Added Tax (VAT) at 5%, while residential units will remain generally exempt, except for the first supply of a new residential building within the first three years of it being constructed, which will be 0% rated, according to a statement by the Federal Tax Authority (FTA) on Saturday.
The FTA defines the supply of real estate as activities that include, among other things, the sale, lease or giving of the right to any real estate.
A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings that can be occupied by any person as main place of residence. This does not include any place that is not a building fixed to the ground and that can be moved without being damaged; any building that is used as a hotel, motel, bed and breakfast establishment, hospital or the like; a serviced apartment for which services in addition to the
supply of accommodation are provided; and any building constructed or converted without lawful authority.
Meanwhile, a commercial building is any building or part thereof that is not a residential building. Examples include offices, warehouses, hotels, shops, etc. The first supply of a new residential building within the first three years of it being constructed shall be zero-rated.
All subsequent supplies shall be exempt, even if within the first three years. All supplies of commercial property are subject to VAT at 5%, including all buildings or parts thereof that are not residential buildings.
The owners of residential buildings do not register for VAT if they do not have any other business activities.