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There are many farmhouses and farmlands that are used for numerous commercial and non-commercial reasons, such as vacation rentals and staycation locations. Before making any decisions about the sale of such properties, investors or owners of farms should understand the effects of VAT. When you do a cost-benefit analysis on a sale or lease option, the influence of VAT must be considered to determine the financial implications. In this article, we’ll talk about VAT on farmhouses and farmland in the United Arab Emirates.

How does the

VAT treatment of sale of residential building sales affect the VAT treatment of farms?

The FTA has clearly explained in its public clarification document that farmhouses that carry the nature of conventional residential property would be subject to the same VAT treatment as any other residential building. The farm home must be used as the individual’s primary residence for this to apply. After the property has been confirmed as a residential building, any first sale within three years, whether by sale or lease, will be zero-rated. All subsequent supplies will be exempted from VAT-free, therefore, there will be no need to charge VAT.

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

There may be situations where the buildings on a farm won’t be considered a residential buildings. Following are some of the scenarios.

• A place in farmland that is not a building fixed in the ground and can be removed without causing damage.
• A construction on farmland that is used to function as a commercial enterprise such as a hotel, motel, hospital, bed and breakfast, and so on.
• Any type of service apartment that offers services in addition to a place to stay.
• Any structure built without permission on farmland is illegal.

NOTE: In all the above cases, the sale of the building in the farmland will be taxable as per the standard rate.

How can VAT treatment on bare land impact the VAT treatment on farmland?

Any sale of bare land that complies with VAT regulations is exempt from VAT-free. As a result, if a piece of farmland can be classified as bare land as per its use and status, any sale of that farmland is classified as exemptVAT-free. Farmland that is devoid of buildings or construction work can be classified as bare land, making any sale of such assets exempt from VATVAT-free. Therefore, to assess the VAT treatment for the sale of farmland, it is necessary to understand its present use and the intended purpose of the land.

Difference in the VAT treatment of commercial farmland and non-commercial farmland

When a farmland cannot be deemed as bare land because of an existing building on the property or construction work in progress, the land can be classified as either commercial farmland or non-commercial farmland. Commercial farmlands are those that have been developed or are being developed to cultivate crops or raising livestock, and any sale of such land will be taxed at the standard rate. If the property is covered by a completed or partially completed building or if there is any construction work in progress, the sale of farmlands established for private and non-commercial purposes, will be treated the same as commercial farmlands. Any non-commercial farmland that is devoid of buildings or construction activity will be treated as bare land, and the sale of such land will be exempt from VATVAT-free.

Determining the VAT treatment of farms in UAE with multiple sales

The main use of the farmland must be assesseddetermined to determine the VAT treatment of farms with various sales or a sale of a single composite farm. For example, if the farm’s primary use is residential (it is the person’s main place of residence) and the activities in the farmland are for the person’s pleasure, any sale of the farm must be treated as similar to that of a residential building and will be exempt from VAT.

On the other hand, if the farm is solely used as a weekend getaway and the owner has a primary residence somewhere else, the farm will be recognized as a commercial property and any sale will be taxable at the standard rate. Therefore, it is’s critical to determine the intended purpose and use of holding farms on a case-by-case basis to apply the appropriate VAT treatment.

Got queries? Need clarifications? Contact us

When it comes to applying the right VAT treatment in the real estate sector, investors may experience issues identifying the nature of sales and their corresponding VAT impact as needed by regulatory authorities. The Controller is the UAE’s expert VAT consultant service provider, who continue to successfully advise clients in the UAE on scenarios involving VAT applications on a variety of assets, including farmhouses and farmlands. Our VAT experts can assist you in determining the correct interpretation of VAT laws, especially for complicated and composite sales to ensure proper compliance with the region’s VAT rules and regulations.