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VAT impact on Farmhouses and Farmlands in the UAE

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

We will be discussing the impact of VAT on farmhouses and farmlands in the UAE based on the purpose for which it is being used. Farahat & Co. has a team of experienced tax consultants in UAE who can guide your way through making an informed decision regarding sale or leasing options for these properties in the UAE.

VAT Treatment for Farmhouses that are being used for Residential Purposes

A farmhouse in the UAE is treated as exempt from VAT if used as a residential unit as per the FTA guidelines. As per these guidelines, a farmhouse will be treated as a residential building if the owner has occupied it as his principal place of residence. As per the regulations, a farmhouse cannot be treated as a residential building if it falls under any of the following mentioned categories of buildings: -

  1. The building is not permanent and can be moved easily from one place to another.
  2. The building is used as a hotel, motel, hospital, or bed and breakfast establishment.
  3. Service apartments that are dealing with another service apart from providing accommodation.
  4. Any building that has been constructed against the lawful authority permissions.

For example, families' farmhouses for weekend stays or staycations will not be considered residential as it is not their primary residence. Their primary residence is elsewhere, and they have visited the farmland only for weekends or for their leisure times.

Kindly note that a farmhouse is used partially for residential purposes and as a hotel or a motel. The part used for residential purposes will qualify as a residential building provided it meets the other qualifications as per the executive regulations. The VAT consultants in Dubai can provide more detailed insights into these properties.

Read also: VAT on all the supplies in the Higher Education Sector in the UAE

VAT Rules on the First Supply of the Farmhouses that are being used for Residential Purposes

As per the FTA guidelines, the first supply of a farmhouse used for residential purposes will be zero-rated in the first three years of its completion. The subsequent supplies, including those of the sales and leases, will be exempt from VAT.

The investors and the owners of farmhouses in the UAE are therefore advised to consult the tax consultants in the UAE before leasing or selling their properties to understand the VAT implications on their deals.

VAT Impact on other categories of Farmhouses and Farm Buildings in the UAE

In cases where a farmhouse is located on agricultural land and does not satisfy the conditions of a residential building, then they would come under the category of commercial buildings. The farmhouses used as commercial buildings would be subject to VAT at the standard rate of 5%. The following are some examples of farmhouses that are used for commercial buildings:

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

VAT Impact on Commercial Farmlands in the UAE

The VAT implications on the supply of plots of farmlands, e.g. fields on which no buildings are there, depends on whether the land is bare. For calculating the VAT impact in such cases, each supply has to be considered.

The VAT real estate guide defines that farmland will be considered commercial land as it will be with some infrastructure to make it functional. Since these kinds of lands will have the normal things set up like irrigation systems, roads and utility connections in place, they will be considered commercial units and hence would be subject to standard VAT rates of 5%.

VAT Impact on Non-Commercial Farmlands in the UAE

Lands that are not being used for commercial activities, but are being used for private farming like growing crops or grazing livestock, also qualify as commercial lands if completed buildings or civil engineering works partially or completely cover them.

If such lands are not covered by any civil engineering works or buildings and are only being used for the growing of crops, then they are termed "bare lands". In these cases, the supply of the farmland by way of either lease or sale is considered exempt from VAT.

Supply of Farmland in the UAE

The VAT treatment of the supply of a farm consisting of both the commercial and residential buildings should be based on whether it is a single composite supply or a mixed supply. For determining VAT liability, each case will differ so that the treatment will differ. If it is a mixed supply, individual components will be subject to different VAT treatments. If not, then VAT liability will be as per the principal component.

The supplier must be able to identify the following: -

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

In the situations where the supplier is making a single composite supply of the farm and where different elements of the farm are being used for different purposes that are taxable or non-taxable, the supplier has to identify the predominant use of the farm and apply that VAT treatment to the entire supply. As an example: -

  1. If the principal use of a farm is for the residence of a family, it will be considered a residential unit predominantly and hence would be exempt from VAT.
  2. On the other hand, if a commercial farm also has residential parts inside it that accommodate the firm's manager and his family, it would be considered a commercial unit predominantly and hence would be subject to standard VAT rates.

One must consult the Tax consultants in the UAE for any doubts to check the VAT guidelines compliance.

Read also: Your guide to Commercial Activities Certificate under VAT in the UAE

How Farahat & Co. can help you identify VAT applications for Farmhouses and Farmlands in the UAE?

We at Farahat & Co. have a team of VAT consultants in Dubai who can help you identify the exact treatment of VAT for your supplies to the farmlands and farmhouses in the UAE. Call us today, and we will guide your way through to avoid non-adherence to VAT guidelines.

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.