Is VAT charged on the sale of bare land?

Article 44 – Exemption of Bare Land The phrase “bare land” means land that is not covered by completed, partially completed buildings or civil engineering works.

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

5. Bare land 5.1. Definition Bare land is land located in the UAE which is not covered by either completed, partially completed buildings or civil engineering works10. The phrase “land” means any area on the surface of the earth, including any trees, plants or natural objects in, under or on top of it. The ordinary meaning of bare land is vacant i.e. land that has no buildings, whether partial or not, or nothing else on the land. In order for land to be considered “bare land” for UAE VAT purposes, none of the following must be present on top of the land: • • • Completed buildings; Partially completed buildings; or Civil engineering works. Where a plot of land is covered only by natural objects such as natural trees and natural plants, this will be considered bare land for VAT purposes. 5.2. VAT liability of bare land The supply of bare land is exempt from VAT. This includes the supply by either lease or by sale. As a result, any VAT on costs associated with the supply of bare land e.g. legal fees or agent’s fees, shall not be recoverable by the supplier. Where a plot of land is supplied which does not meet the definition of ‘bare land’, it shall be considered to be commercial land and the supply shall be subject to VAT at the standard rate. This will be evaluated on a case by case basis 5.3. When does construction reach a stage where it is considered to be a partially completed building? Construction would be considered to be sufficient enough to represent a partially completed building when the stage of the construction has progressed beyond foundation level. As a result, the sale of land where a degree of construction has been completed, but the construction has not progressed beyond foundation level shall not be sufficient enough to classify the land as being covered by a partially completed building. Depending on the nature of the construction which has been undertaken in such cases, the construction may nevertheless represent civil engineering works. As a result, the supply of the land may be considered “covered” and therefore subject to VAT at the standard rate. Where a plot of land has been fenced to allow construction to commence and temporary movable structures were placed on the land, the erection of the fence and 10 Article 44, VAT Executive Regulations. 13 VAT Guide | Real Estate | VATGRE1

  Bare land. Local passenger transport. Exempt supplies are not taxable supplies for VAT purposes. Therefore, VAT is not charged on exempt supplies and the supplier is prevented from recovering any VAT on expenses incurred in making those exempt supplies. 24 VAT Guide | Taxable Person | VATG001

lease or sale of such farm buildings should be subject to VAT at the standard rate. :األراضي الزراعية التجارية Commercial farm land: The VAT treatment of the supply of plots of farm تعتمد المعاملة الضريبية المطبقة على توريد األراضي land, e.g. fields etc, on which no buildings are الحقول وغيرها التي ال توجد: على سبيل المثال،الزراعية situated, is dependent on whether the land is " على ما إذا كانت األرض تعتبر "أراضي فضاء،عليها مبان considered to be “bare land” for the purposes of من، ولذلك.) من الالئحة التنفيذية44( لغايات المادة،أم ال Article 44 of the Executive Regulations. As a result, المهم أن يتم النظر في الحقائق لكل توريد على حدا لتحديد it is important that each supply is considered on its .المعاملة الصحيحة لضريبة القيمة المضافة own individual facts in order to determine the correct VAT treatment. The VAT Real Estate Guide clarifies that farm land يوضح دليل ضريبة القيمة المضافة للقطاع العقاري أن will normally be considered to be commercial land, أي أنها،األرض الزراعية عادة ما تعتبر أرض تجارية i.e. not “bare” land, as it will normally be covered حيث ستتم تغطيتها عادة بالبنية، "ليست "أرض فضاء with infrastructure or civil engineering works ،التحتية أو أشغال الهندسة المدنية الالزمة لتشغيلها كمزرعة required to make it operational as a farm e.g. ، أنظمة الري:ومن أمثلة البنى التحتية على سبيل المثال irrigation systems, roads, utility connections etc. . وما إلى غير ذلك، وتوصيالت المرافق العامة،الطرق Farm land which has been developed to this degree ومن المتوقع عادة استخدام األرض الزراعية التي تم would normally be expected to be used for ويعني ذلك،تطويرها إلى هذه الدرجة ألغراض تجارية commercial purposes i.e. the operation of a يخضع لضريبة القيمة، وعليه.تشغيل أعمال زراعية farming business. As such, the supply of any such commercial farm land would be subject to VAT at the standard rate. 5 .المضافة بالنسبة األساسية توريد األرض الزراعية التجارية