Residential property sales and leasing in UAE to be exempt from VAT

Supplies of residential property including sales and leasing in the UAE will be exempt from value added tax (VAT), according to the UAE’s finance ministry.

In a VAT briefing session for advisors last week, the ministry also confirmed that there will be one exception, EY said in a report.

The first sale of new residential property in the country will be subject to the zero rate of VAT.

Meanwhile supplies of commercial property – both sales and leasing – will be subject to the standard rate of VAT, which has been fixed at 5 per cent.

Supplies of bare land will be exempt from the tax.

The ministry also affirmed that the UAE is still on track to implement VAT from January 1 2018.

It expects to release its domestic VAT Law before the end of the first half of 2017, with detailed executive regulations to follow shortly after, said EY.

Under the GCC VAT framework agreement, member states who do not introduce the tax in 2018 will have up to one year to implement it.

In the UAE, a zero rate of VAT will be applied to both healthcare and education services.

“Both services were previously expected to be exempt from VAT, meaning that input VAT would have been a cost to businesses making such services. The zero rate will allow such businesses to recover input VAT,” explained EY.

A list of medicines and medical equipment will also be zero-rated, but the details are yet to be finalised.

Meanwhile supplies of local transport, such as taxis, buses, trains will be exempt.

“At a GCC level, a list of basic food items have been agreed to be subject to the zero rate of VAT. The UAE does not have to apply this zero rate, and it advised that it intends to subject these food items to the standard rate of VAT,” EY said.

The ministry also stated that fee-based financial services will generally be subject to the standard VAT rate, and Islamic financial products will treated equivalent to other financial products.

Life insurance will be exempt from VAT but all non-life insurance products will be subject to the standard rate.

Investment gold, silver and platinum will be zero-rated.

The feasibility of a Tourist Refund Scheme is also being considered, the ministry said.

The mandatory registration threshold for VAT will be $100,000 and the voluntary threshold will be $50,000.

“Businesses with turnover below $50,000 cannot voluntarily register. Registration will open towards the end of Q3 2017,” the report stated.

There will be quarterly returns with filing and payments will be due within a month after the quarter.

Tax invoices will be required to be issued within 14 days and up to 12 items will be specified as required on a Tax invoice.

Registration, filing and payments will all be conducted electronically.

Records, including tax invoices, must be retained for five years, the report added.

“Audits will generally be conducted only after five days advance notice, except where fraud is suspected. Where fraud is suspected a business may be closed down for 72 hours and penalties of up to 500 per cent may be applied on top of the primary VAT owing,” it said.

“The message conveyed by the finance ministry was clear, that businesses need to prepare for VAT to be introduced in the UAE from January 1, 2018,” it added.