UAE to make residential property and passenger transport exempt from VAT

The UAE is set to implement 5% VAT from January 2018.

In an update on its website, the Ministry said the VAT treatment of real estate will depend on whether it is a commercial or residential property.

"This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties," it said. "In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within three years from their completion will be zero-rated."

Some other sectors are not exempt from VAT but will be zero rated. These include goods and services exported to outside the Gulf Cooperation Council areas, international transport, some precious metals, and the supply of some education and healthcare goods and services, the Ministry said.

Over half of UAE businesses do not have a plan in place for introducing VAT in time for the deadline, according to recent research by recruitment company Hays.

While 69% of UAE businesses believe that VAT changes will be implemented on schedule, 52% do not have an implementation strategy in place and 60% say they have not assigned a budget for managing the change, Hays found.

VAT registration will be mandatory for businesses with turnover in excess of $100,000, while businesses with turnover in excess of $50,000 may voluntarily register. Below that level, registration will not be possible. Registration is expected to open in the third quarter of 2017.

VAT expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, said: "The rules pertaining to real estate largely seem to be similar to those seen in the UK and EU. In those jurisdictions, real estate transactions often throw up some of the most difficult issues relating to VAT, for example mixed use developments, conversions from commercial to residential and developments between connected parties. It is likely that taxpayers and the governments will have to work hard to resolve teething pains in this area."

"With so much of the legislation and guidance arriving late in the day, businesses will be under severe pressure to implement in time," he said.