UAE’s Federal Tax Authority has  issued  Public Clarification VATP018 on “Change in the permitted use of a building.  As per the new clarification, VAT Treatment on the sale of real Estate building in UAE will be based on the usage of that building at the time of sale. Subsequent change in  usage of  the building will not impact VAT Treatment. 

Accordingly, depending upon the nature of the building and the permitted use thereof at the date of supply, the supply of a building may be standard-rated, zero-rated, or exempted from VAT.

The supply of a building constitutes the supply of a single indivisible good at the date of supply. Since VAT is a tax based on transactions, the VAT treatment shall be determined independently at each date of supply. If the purchaser changes the permitted use of the building, it does not impact on the VAT treatment of the preceding sale.


If the building was sold as a hotel apartment and the buyer changes the permitted use of the building to residential use only, the supplier would charge VAT at 5% on him, and the buyer should not account for VAT on the subsequent exempt supply of a residential building.

If the building was sold as a residential building and the buyer subsequently changes the permitted use of the building to a hotel apartment, then it does not affect the original transaction. The original transaction would be exempt from VAT except if it was the first supply of the building chargeable at zero-rated tax.

If, in the future, such a hotel apartment is sold, then the purchaser will have to account for 5% VAT to a third party if the purchaser is a taxable person.

Availing the VAT-related services which are provided by ALYA Chartered Accountants is a perfect option. ALYA is a reputed auditing firm and can offer you service both in mainland and free zones. This firm is approved by free zones such as Dafza, Jafza, Dmcc and many others. For more details, Contact Us. We will be glad to be of service.

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