VAT Matters - Real Estate | KPMG | AE

Sector insights | Real estate

Sector insights | Real estate

Some GCC states have announced their intention to implement VAT as early as 1 January 2018. Companies need to ensure they take action now to prepare. VAT will affect real estate companies in different ways and a wide range of business operations and services may need to be addressed.

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real-estate

Real estate can cover a wide range of business operations and services including:

  • Purchase of land
  • Development of sites 
  • Sale of completed properties
  • Sales, lease and management of developed properties 
    • Commercial
    • Residential 
    • Mixed use properties

The UAE's Ministry of Finance has not yet issued specific guidance in relation to VAT on residential and commercial property. 

However, experience of VAT and goods and services tax (GST) systems in Singapore, Malaysia, Australia, and the UK suggest:

  • For commercial properties: taxable both sale and lease, thus allowing recovery of VAT on inputs
  • For residential properties: taxable on first sale, exempt on subsequent sale, while rental is treated as exempt 

VAT recovery for residential development (if, for example, residential use is anticipated) is likely to be blocked, as are business inputs into the leasing of residential properties.

Real estate companies should also consider: 

  • Pressure on costs and on residential rents
  • Complexities arising from mixed developments involving commercial and residential leasing
  • The need to apportion VAT recovery

Other issues include:

  • Long-term leases
  • Commercial leases subject to turnover
  • Treatment of ‘free’ fit outs or leasing holidays

Further information

If you require further information on VAT issues, please contact Rob Dalla Costa or any member of market-leading tax team.

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