VAT on Farmhouses and Farm lands in UAE

There are numerous farmhouses and farm lands in UAE, which are used for various commercial or non-commercial purposes including vacation rentals and staycation destinations. Investors or owners of farms need to know about the implication of VAT before making any decision on the supply of such properties. Very often when the cost-benefit analysis is made on the sale or leasing options, the VAT impact also has to be factored in to know the absolute financial outcomes. In this blog we will discuss VAT on farmhouses and Farm lands in UAE.

How does VAT treatment on supply of residential buildings impact the VAT treatment on farmhouses?

FTA in its public clarification document on this subject, has explained in detail that farmhouses which are of the nature of a regular residential building shall follow the VAT treatment as same as a residential building. For this to be applicable, the farm house has to be used as a principal place of residence by a person. Once the property is confirmed as a residential building, any first supply within 3 years, either sale or lease of the building after its construction will be zero rated. All other supplies after this first supply will be exempt from VAT and no need to charge VAT. 

What are the different types of farmhouses and their VAT implications as per UAE VAT law?

There can be other situations where the buildings in a farm cannot be considered as residential building and can be scenarios as listed below:

• A place in the farmland which is not a building fixed to the ground and can be removed from there without any damage
• A building in the farmland which is used to run a commercial enterprise like hotel, motel, hospital, bed & breakfast etc.
• Any kind of service apartment with provision of services along with the stay facility
• Any building built illegally in a farm land

It is to be noted that in all these above cases, supply of the building in the farm will be taxable at standard rate.

How does VAT treatment on bare land impact the VAT treatment on farm land?

Any supply of bare land as per the VAT regulation is exempt from VAT. Hence if a farm land can be categorized as bare land based on its usage and status, any supply of that farmland can also be treated as exempt from VAT. Farm lands with no buildings or no construction work going on can be considered as bare land and thereby any supply of such properties will be exempt from VAT. Hence to determine the VAT treatment for a supply of farmland, it is important to know about the current usage and intended purpose for holding such a land.

Also Read: How Does VAT Work in UAE?

Is there difference in VAT treatment of commercial Farm land and non-commercial Farm land?

In the cases where a farm land cannot be considered as bare land because of any existing building on the land or construction work going on in the site, the land in the context can either be commercial farm land or non-commercial Farm land. Farm lands which are developed or being developed for business purposes by growing crops of livestock are to be considered as commercial farm lands and any supply of such land will be taxable at standard rate. Where supply of farm lands developed for private farming purposes, which are non-commercial, will still be considered the same as commercial farm lands if the land is covered by a completed or partially completed building or construction work. Any non-commercial farm land with no buildings or construction activity going on will be treated the same as bare land and hence supply of the same will be exempt from VAT.

How to determine the VAT treatment of farms in UAE with multiple supplies?

To determine the VAT treatment of farms which have multiple supplies or in the cases of a supply of a single composite farm, it is necessary to conclude on the primary usage of the farm. For example, if the primary usage of the farm is residential purpose (it is the principal place of residence for the person residing there) and the activities in the farmland is for the personal enjoyment of the person residing there, any supply of farm as a whole has to be treated as similar to that of a residential building and will be exempt from VAT. However, if the farm is used only as a weekend home and the person has a principal place of residence elsewhere, the farm will qualify to be treated as a commercial property and any supply of the same will be taxable at standard rate. Hence it is really crucial to understand the intended purpose and usage of holding the farms on a case to case basis to apply the right VAT treatment.

Also Read: Why are VAT Consultancy Services required for your business in UAE?

Do you have more queries relating to VAT treatments on your properties in UAE? Contact CDA for clarifications

When it comes to applying the correct VAT treatment on properties, investors may face challenges to identify the nature of supplies and their respective VAT impact as required by the regulatory provisions. CDA is the leading VAT consultancy Service provider in UAE and has been successfully advising clients in UAE over scenarios which consist of VAT applications on different types of properties including farmhouses and farm lands. We assure you that our VAT experts can help you in arriving at the right interpretation of the VAT provisions even for complex and composite supplies to ensure proper compliance with the VAT rules of the region.