Can a landlord of residential property recover input VAT?

Article 54 - Recoverable Input Tax 1. The Input Tax that is recoverable by a Taxable Person for any Tax Period is the total of Input Tax paid for Goods and Services which are used or intended to be used for making any of the following: a. Taxable Supplies. b. Supplies that are made outside the State which would have been Taxable Supplies had they been made in the State. c. Supplies specified in the Executive Regulation of this Decree-Law that are made outside the State, which would have been treated as exempt had they been made inside the State. 2. Where Goods are imported by a Taxable Person through another Implementing State and the intended final destination of those Goods was the State at the time of Import, then the Taxable Person shall be entitled to treat the Tax paid in respect of Import of Goods into the Implementing State as Recoverable Tax subject to the conditions specified the Executive Regulation of this Decree-Law. 3. Where Goods were acquired by a Taxable Person in another Implementing State and then moved into the State, the Taxable Person shall be entitled to treat the Tax paid in respect of the Goods in the Implementing State as Recoverable Tax subject to the conditions specified in the Executive Regulation of this Decree-Law. 4. A Taxable Person shall not be entitled to recover any Input Tax in respect of Tax paid in accordance with Clause 2 of Article 48 of this Decree-Law. 5. The Executive Regulation of this Decree-Law shall specify the instances where Input Tax is excepted from being recovered. Article 54 (bis)22 1. The Authority shall reject the deduction of the Recoverable Input Tax if it is established to the Authority that the supply subject to the deduction was part of a supply or a chain of supplies related to Tax Evasion, and the Taxable Person was aware of this relation upon deducting the Recoverable Input Tax. 2. The Authority may reject the deduction of the Recoverable Input Tax if it is 22 Article added as per Federal Decree-Law No. 16 of 2025. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 26 established to the Authority that the supply subject to the deduction was part of a supply or a chain of supplies related to Tax Evasion, and the Taxable Person should, based on circumstances of the supply, have been aware of this relation. 3. For the purposes of applying the provisions of Clause 2 of this Article, the Taxable Person shall be considered to have been required to be aware that the supply was part of a supply or a chain of supplies related to Tax Evasion, if he did not verify the validity and integrity of the supplies he receives before deduction of Input Tax, in accordance with the measures, procedures and conditions determined by the Authority in this regard.

Article 52 – Input Tax Recovery in Respect of Exempt Supplies 31 1. Supplies referred to in paragraph (c) of Clause 1 of Article 54 of the Decree-Law are the supplies of financial Services, where the place of supply of these Services is treated as outside the State and the Recipient of Services is outside the State at the time when the Services are performed. 2. For the purposes of Clause 1 of this Article, a Person shall be considered “outside the State” if only present in the State for a period of less than 30 (thirty) days, and such presence is not effectively connected with the supply.32 3. Any Tax paid by a Person in another Implementing State on the Import of Goods to the State through that Implementing State or on the supply of Goods to this Person in that Implementing State where the Goods are then transferred to the State, is recoverable in the State if the relevant Goods will be used or are intended to be used in accordance with Clause 1 of Article 54 of the Decree-Law and the following conditions are satisfied: 31 Article amended as per Cabinet Decision No. 100 of 2024. 32 Clause amended as per Cabinet Decision No. 149 of 2026. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 41 a. The Taxable Person keeps evidence that he has paid Tax in another Implementing State in respect of the relevant Goods. b. The Taxable Person has not recovered the Tax paid in any other Implementing State. c. The Taxable Person has complied with any additional reporting requirement that the Authority may specify. 4. Where the first supply of a residential building by a Taxable Person is by way of lease which is zero-rated in accordance with provisions of the Decree-Law, the Taxable Person may recover Input Tax in full in respect of that supply regardless of any future intention to make later exempt supplies in respect of that residential building.

7. Mixed use developments 7.1. What is a mixed-use development? A mixed-use development is a building or plot of land which has clear and distinct areas which are put to different uses which would have a different VAT treatment when supplied. For example, a building which has retail units on the ground floor level, office or commercial space on the middle floors of the building and residential units on the top floor would be considered a mixed-use development. Where a distinct part of a mixed-use development is supplied, the VAT liability applicable to the supply shall depend on the use of the part of the building which is being supplied i.e. the supply of a commercial unit shall be taxable at the standard rate, whilst the supply of a residential unit (other than the first supply) shall be exempt from VAT. Where a mixed use-development is sold in its entirety, it shall be necessary to apportion the consideration received between the different parts of the building. The value of consideration relating to the residential part of the building shall be treated as exempt from VAT (or zero-rated, where the supply is the first supply), and the value of consideration relating to the commercial part of the building shall be treated as standard rated. 7.2. VAT recovery on development costs Input tax incurred on the development cost of new commercial real estate is recoverable in full, given that supplies of that building shall be taxable. This means that developers will be able to recover VAT over the duration of the development of the building. Where a taxable person incurs the costs of constructing a residential building, all of the VAT incurred on the costs of such development shall be recoverable in full on the basis that the costs relate to the zero-rated first supply. Any future supplies of the building by that taxable person (e.g. a subsequent lease, which would be exempt from VAT after the first supply) shall be ignored for the purposes of input tax recovery. As a result of the above, any VAT incurred on the construction of a mixed-use development should be recoverable in full. 7.3. VAT recovery on repair & maintenance costs Input tax incurred on the repair and maintenance costs of a property which is used for wholly commercial purposes is recoverable in full. Input tax incurred on the repairs and maintenance of a property which is used for wholly residential purposes is not recoverable. Where input tax is incurred on a property which is used for both commercial and residential purposes, the taxpayer is required to directly attribute the VAT on costs 19 VAT Guide | Real Estate | VATGRE1

Article 43 – Exemption of Residential Buildings 1. The supply of residential buildings is exempt, unless it is zero-rated, where the lease is more than 6 six months or the tenant of the property is a holder of an ID card issued by Federal Authority for Identity and Citizenship. 2. The period of tenancy referred to in Clause 1 of this Article shall be identified with reference to the contractual period of tenancy and shall not take into account any period arising from a right or option to extend the period of tenancy or renew the tenancy. 3. For the purposes of Clause 1 of this Article, a right of any party to terminate the lease early shall be ignored.