Is the first sale of a new residential building subject to VAT?

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

Article 45 - Goods and Services Subject to Zero Rate18 The zero rate shall apply to the following Goods and Services: 1. A direct or indirect Export of Goods and Services to outside the Implementing States as specified in the Executive Regulation of this Decree-Law. 2. International transport of passengers and Goods which starts or ends in the State or passes through its territory, including Transport-related Services. 3. Air passenger transport in the State if it is considered an “international carriage” pursuant to Article 1 of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929. 4. Supply or Import of air, sea and land means of transport for the transportation of passengers and Goods as per the criteria and conditions specified in the Executive 18 Article amended as per Federal Decree-Law No. 18 of 2022. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 21 Regulation of this Decree-Law. 5. Supply of Goods or Services, or Import of Concerned Goods, related to the supply of the means of transport mentioned in Clause 4 of this Article and which are designated for the operation, repair, maintenance or conversion of these means of transport. 6. Supply or Import of air or sea rescue and assistance aircrafts or vessels. 7. Supply of Goods and Services related to the transport of Goods or passengers aboard air, sea and land means of transport pursuant to the provisions of Clauses 2 and 3 of this Article, designated for consumption on board; or anything consumed by any means of transport, any installations or addition thereto or any other use during transportation. 8. The supply or Import of investment precious metals. The Executive Regulation of this Decree-Law shall specify the precious metals and the standards based on which they are classified as being for investment purposes. 9. The first supply of residential buildings within 3 years of its completion, either through sale or lease in whole or in part, according to the controls specified in the Executive Regulation of this Decree-Law. 10. The first supply of buildings specifically designed to be used by Charities through sale or lease according to the controls specified in the Executive Regulation of this Decree-Law. 11. The first supply of buildings converted from non-residential to residential through sale or lease according to the conditions specified in the Executive Regulation of this Decree-Law. 12. The supply or Import of crude oil and natural gas. 13. The supply of educational Services and related Goods and Services for nurseries, preschool, school education, and higher educational institutions owned or funded by Federal or local Government, as specified in the Executive Regulation of this Decree-Law. 14. The supply of preventive and basic healthcare Services and related Goods and Services, and Import of related Concerned Goods according to what is specified in the Executive Regulation of this Decree-Law. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 22 Chapter Two – Exemptions

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