Is a holiday home rental subject to VAT?
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Yes. A holiday home rental is normally taxed at the standard 5% VAT rate, because it's short-term accommodation rather than someone's main home, so it doesn't qualify for the residential exemption.
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The detail
A holiday home does not meet the exemption for residential buildings under Article 46 of the Federal Decree-Law, because that exemption only applies where the lease exceeds six months or the tenant holds an Emirates ID, and a holiday home is typically let short-term to visitors who are not resident tenants. It also falls outside the 'residential building' definition used for zero-rating/exemption purposes, as guidance treats accommodation resembling a hotel, motel or serviced apartment as commercial. As a result, the rental is a taxable supply of commercial accommodation, subject to VAT at the standard 5% rate.123
What the law says
- Residential building leases are exempt from VAT unless zero-rated, but only where the lease exceeds six months or the tenant holds a Federal Authority for Identity and Citizenship ID card.1
- Federal Decree-Law Article 46 exempts supplies of residential buildings by sale or lease, other than those that are zero-rated as a first supply.2
- FTA guidance states a residential building excludes buildings used as a hotel, motel, bed & breakfast or similar short-stay accommodation, and excludes serviced apartments where extra services are provided.3 Based on FTA guidance
What it depends on
- The exemption requires either a lease term over six months or an Emirates ID-holding tenant; holiday lets are usually short stays that fail this test.1
- If the property is instead let long-term (over six months) to a resident tenant with an Emirates ID, it would be treated as exempt residential accommodation, not taxable.1
- Accommodation resembling a hotel/motel/serviced apartment (as holiday homes typically are) is excluded from the residential building definition altogether, making it commercial regardless of lease length.3 Based on FTA guidance
Check before you rely on it
- Check the actual length of the tenancy/booking period
- Check whether the tenant holds an Emirates ID and the lease terms reflect a long-term residential arrangement
- Check whether any additional services (cleaning, linen, etc.) are bundled in a way that makes it look like serviced/hotel-type accommodation
Sources (3) — read the official text
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Article 43 – Exemption of Residential Buildings
Read the article
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 Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 34 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.
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Article 46 - Supply Exempt from Tax19
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Article 46 - Supply Exempt from Tax19 The following shall be exempt from Tax: 1. Supply of financial Services that are specified in the Executive Regulation of this Decree-Law. 2. Supply of residential buildings through sale or lease, other than that which is zerorated according to Clauses 9 and 11 of Article 45 of this Decree-Law. 3. Supply of bare land. 4. Supply of local passenger transport. The Executive Regulation of this Decree-Law shall specify the conditions and controls for exempting the supplies mentioned in the preceding Clauses of this Article. Chapter Three – Single and Mixed Supplies
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Read the article
3. Residential buildings 3.1. Definition A residential building is a building which is intended and designed for human occupation. This includes3: • • • • Any building or part of a building that the person occupies, or that it can be foreseen that a person will occupy, as their principal place of residence; Residential accommodation for students or school pupils; Residential accommodation for armed forces and police; Orphanages, nursing homes and rest homes. A residential building is not4: • • • • Any place that is not a building fixed to the ground and which can be moved without being damaged; Any building that is used as a hotel, motel, bed & breakfast establishment, or hospital or the like; A serviced apartment for which services in addition to the supply of accommodation are provided; Any building constructed or converted without lawful authority. A building is still considered to be a residential building if a small proportion of it is used as an office or workspace by the occupants, if it includes garages and gardens used in conjunction with the property, or if it includes any other features that may be said to comprise part of the residential building5. 3.2. First supply of a residential building The first supply of a residential building will be zero-rated for VAT purposes. This means that the VAT incurred on costs relating to the first supply of the building should be recoverable in full. The ‘first supply’ includes a supply of the building by either sale or lease, but it must be made within 3 years of the buildings’ completion date. This treatment shall apply regardless of who the building is supplied to (e.g. a registered customer, a nonregistered customer, a related party etc.) provided that it is supplied within the relevant timeframe. The completion date of a building is normally the date the building is certified as being complete by an appropriately qualified party. However, if the building is occupied before this date, the date on which the building is occupied shall be taken to be the date of completion. 3 Article 37(1), VAT Executive Regulations. Article 37(2), VAT Executive Regulations. 5 Article 37(3), VAT Executive Regulations. 4 7 VAT Guide | Real Estate | VATGRE1
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Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer
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