Impact of VAT on farms and agricultural land in the UAE

There are numerous farms and farmlands in the UAE that are used for commercial and non-commercial purposes. The use of these properties varies from agricultural land to vacation rentals and staycation destinations. Therefore, owners of such farmland and farmhouses need to understand the impact of VAT while operating a farmhouse or farmland in the UAE.

We will discuss the impact of VAT on country houses and farmland in the UAE based on the purpose for which it is used. Farahat & Co. has a team of experienced tax advisors in the UAE who can guide you to make an informed decision regarding the options to sell or lease these properties in the UAE.

VAT treatment for country houses that are used for residential purposes

A country house in the United Arab Emirates is treated as VAT-exempt if used as a residential unit under NAFTA guidelines. Under these guidelines, a farmhouse will be treated as a residential building if the owner has occupied it as his or her primary place of residence. According to the regulations, a country house cannot be treated as a residential building if it belongs to any of the following building categories mentioned: –

  1. The building is not permanent and can be easily moved from one place to another.
  2. The building is used as a hotel, motel, hospital, or bed and breakfast establishment.
  3. Service apartments that deal with another service apart from accommodation.
  4. Any building that has been built against the permission of legal authorities.

For example, cottages owned by families for weekend or vacation stays at home will not be considered residential, as it is not their primary residence. Their primary residence is elsewhere, and they have visited the farmland only on weekends or at leisure.

Please note that a cottage is partially used for residential purposes and as a hotel or motel. The part intended for residential purposes will qualify as a residential building as long as it meets the other qualifications provided for in the executive regulations. The VAT advisors in Dubai can provide more detailed information about these properties.

Also read: VAT on all supplies in the Higher Education Sector in the UAE

VAT Regime in the First Delivery of the Farmhouses that are being used for Housing

Under FTA guidelines, the first supply of a farmhouse used for residential purposes will be zero-rated within three years of completion. Subsequent deliveries, including sales and leases, will be exempt from VAT.

Investors and farm owners in the UAE are therefore advised to consult tax advisers in the UAE before leasing or selling their properties to understand the VAT implications of their deals.

Impact of VAT on other categories of farms and farm buildings in the UAE

In cases where a country house is located on agricultural land and does not meet the conditions of a residential building, it would fall into the category of commercial buildings. Country houses used as commercial buildings would be subject to VAT at the standard rate of 5%. The following are some examples of country houses being used for commercial buildings:

  1. The farmhouses are not being used as a main place of residence by the owner or by any other person.
  2. The buildings are used for commercial activities such as livestock, granaries, stables, etc.

Impact of VAT on commercial agricultural land in the UAE

The implications of VAT on the provision of agricultural land, for example fields in which there are no buildings, depend on whether the land is bare. To calculate the impact of VAT in these cases, each supply must be considered.

The VAT real estate guide defines that farmland will be considered commercial land as it will have some infrastructure to make it functional. Since this type of land will have the normal things installed, such as irrigation systems, roads and utility hookups, they will be considered commercial units and therefore subject to standard VAT rates of 5%.

Impact of VAT on non-commercial agricultural land in the UAE

Land that is not used for commercial activities but is used for private agriculture, such as growing crops or grazing livestock, also qualifies as commercial land if it is partially or fully covered by completed buildings or civil engineering works.

If such land is not covered by civil engineering works or buildings and is only used for cultivation, then it is called “waste land”. In these cases, the delivery of farmland, whether by lease or sale, is considered exempt from VAT.

Farmland supply in the United Arab Emirates

The VAT treatment of the supply of an estate consisting of commercial and residential buildings should be based on whether it is a single composite supply or a mixed supply. For the determination of the VAT obligation, each case will be different, so the treatment will be different. If it is a mixed supply, the individual components will be subject to different VAT treatments. Otherwise, the responsibility for VAT will be according to the main component.

The supplier must be able to identify the following: –

  1. If the supply is mixed, supply or compound supply, and
  2. The VAT treatment of each supply made.

In situations where the supplier makes a single composite supply of the farm and where different elements of the farm are used for different purposes that are taxable or not, the supplier must identify the predominant use of the farm and apply that Treatment. of VAT to the entire supply. As an example: –

  1. If the main use of a farm is for the residence of a family, it will be considered a predominantly residential unit and, therefore, it would be exempt from VAT.
  2. On the other hand, if a commercial farm also has residential parts within it that house the business manager and his family, it would predominantly be considered a commercial unit and would therefore be subject to standard VAT rates.

Tax advisors in the UAE should be consulted for any queries to verify compliance with VAT guidelines.

Also read: Your guide to Certificate of Business Activities under VAT in the UAE

How Farahat & Co. can help you identify farm and agricultural land VAT claims in the UAE?

At Farahat & Co. we have a team of VAT advisors in Dubai who can help you identify the exact VAT treatment for your supplies to farmland and farms in the UAE. Call us today and we will guide you to avoid non-compliance with VAT guidelines.

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