Is VAT charged on construction services for a residential building?

Article 37 – Residential buildings 23 1. The phrase “residential building” means a building intended and designed for human occupation, including: a. 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. b. Residential accommodation for students or school pupils. c. Residential accommodation for armed forces and police. d. Orphanages, nursing homes, and rest homes. 2. A “Residential building” does not include any of the following: a. Any place that is not a building fixed to the ground and can be moved without being damaged. 23 Article amended as per Cabinet Decision No. 100 of 2024. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 29 b. Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like. c. A hotel apartment or serviced apartment or the like. d. Any building constructed or converted without lawful authority. 3. A building shall be considered as 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 it, or it includes any other features that may be considered to comprise part of the residential building.

Article 66 – New residence 1. Where a Person owns or acquires land in the State on which he builds, or commissions the construction of, his own residence, he shall be entitled to make a claim to the Authority to repay the Tax on the expenses of constructing the residence. 2. For the purposes of Clause 1 of this Article: a. The claim may only be made by a natural Person who is a national of the State. 35 Article amended as per Cabinet Decision No. 100 of 2024. Cabinet Decision No. 52 of 2017 and its amendments – Unofficial translation 56 b. The claim must relate to a newly constructed building to be used solely as residence of the Person or the Person’s family. c. The claim may not be made in connection with a building that will not be used solely as a residence by the Person or the Person’s family, for example if it is to be used as a hotel, guest house, hospital or for any other purpose not consistent with it being used as a residence. 3. The refund claim under this Article must be lodged within 12 months from the date of completion of the newly built residence. For the purposes of this Clause, a newly built residence is considered completed at the earlier of the date the residence becomes occupied, or the date when it is certified as completed by a competent authority in the State, or as may otherwise be stipulated by the Authority.36 4. A refund claim must be submitted to the Authority in such manner and containing such details as the Authority may stipulate. 5. Where the Authority has repaid Tax in accordance with this Article, and following the receipt of such repayment the Person breached the condition in paragraph (c) of Clause 2 of this Article, the Authority may require the Person to repay the amount of Tax that was recovered by him. 6. The categories of expenses on which the Person may claim a repayment of Tax under this Article are: a. Services provided by contractors, including services of builders, architects, engineers, and other similar services necessary for the successful construction of residence. b. Building materials, being goods of a type normally incorporated by builders in a residential building or its site, but not including furniture or electrical appliances.

Where a building was completed prior to 1 January 2018, but the first supply of that building within 3 years of its completion takes place after 1 January 2018 the supply will still qualify for zero-rating. It is important to note however, that this rule applies to the first supply of the property, and not to the first supply after the introduction of VAT. If the building was actually transferred or made available for use to the buyer or lessee prior to 1 January 2018, any subsequent supply after 1 January 2018 will not qualify as the first supply of the building even where the building was completed within the last 3 years. Any subsequent supplies of the building, either by sale or lease, within 3 years from its completion date shall not be zero-rated, as they will not qualify as the first supply 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) does not impact the developer’s right to recover input tax incurred before the date of first supply. This means that the taxable person is not required to make any adjustments to its initial input tax recovery on the development costs under the capital assets scheme 6. 3.3. Subsequent supplies of residential buildings The supply of a residential building other than the first supply, is exempt from VAT. This includes where the subsequent supply of the property is supplied within 3 years from the buildings’ completion. Where the supplier of the residential building incurs VAT on costs relating to such a subsequent supply e.g. agent fees, or incurs VAT on costs relating to the general upkeep and maintenance of the property after the first supply, then such costs are considered to directly relate to the exempt supply of the building. As such, the supplier will be unable to recover any VAT on such costs via its VAT return. 3.4. VAT Liability of service charges relating to residential buildings A community master developer or building owner will often make charges to the owners or tenants of units within the community/building in return for the upkeep of the communal areas of the property. Such charges will be subject to VAT at the standard rate, on the basis that they represent a charge for the services of maintaining and running the communal areas. Such charges do not represent the consideration for a supply of a residential building and as such will not be eligible for zero-rating or exemption. 6 8 Article 52(4), VAT Executive Regulations. VAT Guide | Real Estate | VATGRE1