Change in the permitted use of a building

UAE VAT Update

UAE Federal Tax Authority (FTA) has recently published a public clarification on “Change in the permitted use of a building” ( VAT Public clarification – VATP018 ).

The clarification mentions that a change in permitted use will not change the VAT treatment of the preceding sale, but will change the VAT treatment of any subsequent sale of building by the buyer based on the new permitted use of the building.

Below are the key highlights of the FTA Public Clarification:

Date of supply – Sale of a building

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As per Article 25 of UAE VAT law, date of supply is earlier of:

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Date when ownership of building is transferred to purchaser (as evidenced by date of registration);

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Date on which purchaser took possession of building;

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Date on which payment was received in respect of the supply of the building; or

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Date on which Tax invoice was issued in respect of the supply of the building.

Date of supply – Lease of a building

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As per Article 26 of UAE VAT law, in case of lease with periodic payments or consecutive invoices, the date of supply is earlier of:

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Date on which tax invoice issued;

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Date on which payment is due as shown on the tax invoice;

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Date on which payment was received in respect of the lease of the building; or

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Date on which 12 months lapsed from the date the right to use the building was provided to lessee.

VAT treatment – Sale of a building

VAT treatment will depend upon the use of the building as on the date of supply:

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Any change in the use of the building before the date of supply to be disregarded for the purpose of determining the VAT treatment. The permitted use as on the date of supply is to be considered;

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Subsequent change in the permitted use of the building shall not affect the impact of the VAT treatment of the preceding sale of the building

Explanation of different scenarios

Type of Building	Transaction	Type of transaction	VAT treatment
Residential building	First transaction – Sale of residential building	First supply	Within 3 years of completion – zero-rated Otherwise, exempt
	Second transaction – Buyer leases or sells building to third party	Supplies as a residential building	Exempt
		Amends the permitted use of the building and leases/sells as a hotel apartment	5% VAT if the purchaser (owner of the building) is registered for VAT or required to be registered for VAT
Non-residential building	First transaction – Sale of Non-residential building	First supply	5% VAT if the seller is a Taxable Person
	Second transaction – Buyer leases or sells building to third party	Amends the permitted use of the building and leases or sells the building as a ‘residential building’ to third party	Exempt
		Leases or sells the building as a serviced/hotel apartment to a third party	5% VAT if the purchaser (owner of the building) is a Taxable Person.

Article prepared by: Bhawna Chopra – Partner Tax Advisory – Premier Brains

This document is only for information purposes and should not be construed as an advice. It does not necessarily cover each aspect of the topic with which it deals. You should not act upon the contents of this document without receiving formal advice on your particular circumstances.

If you would like to discuss any VAT matters or to learn more about VAT services in Dubai & UAE, please drop us an email at info@premier-brains.com or call us at + 971 4 3542959.