Residential Property VAT Treatment
General Rule: Exempt
The supply of residential property is generally exempt — no VAT is charged, and input tax on related expenses cannot be recovered.
This includes:
- Sale of existing residential property (not the first sale)
- Rental of residential property
Exception: First Supply of New Residential Buildings
The first supply of a new residential building within 3 years of completion is zero-rated (0%):
- The developer charges 0% VAT.
- The developer can recover all input tax on construction costs.
- This applies to both sale and rental of new residential buildings.
The 3-Year Rule
- Within 3 years of completion: First supply is zero-rated.
- After 3 years: First supply is exempt — no VAT, no input tax recovery.
The 3-year period starts from the date of completion (when the building is ready for occupation).
What Counts as a "Residential Building"?
A residential building is one designed for human habitation, including:
- Apartments and flats
- Villas and townhouses
- Staff accommodation
- Purpose-built residential buildings
Exclusions: Hotels, serviced apartments, and commercial buildings are not residential — they are commercial and standard-rated at 5%.
Sale of Bare Land
Bare land is exempt — no VAT charged, no input tax recovery. This applies to the sale of land without any buildings.
Worked Example
A developer completes a residential tower in 2025. The first sale of each unit within 3 years is zero-rated — the developer charges 0% and recovers all input tax on construction (AED 10M in costs, AED 500,000 input tax recoverable). If a unit is first sold after 3 years (e.g., in 2029), the sale is exempt — no VAT and no input tax recovery on that unit's costs.