UAE VAT Update – Refund for UAE Nationals Building New Residences
The Federal Tax Authority (FTA) has released the latest version of the Guide on Refund for UAE Nationals Building New Residences.
How does the New Residences Refund Request work?
The UAE VAT Law allows UAE Nationals to request a special refund from the FTA for the VAT incurred on certain expenses related to the construction of a new residence, subject to certain conditions as prescribed by the Law.
According to the refund process, the request for the refund should be submitted for the FTA review and approval through the e-Services portal along with the requested supporting documentation, including the details of the applicant and property. A UAE National may only submit one special refund request per new residence, except in the case of retention payments where an additional application may be submitted.
Definition of “residence”
One of the key amendments in the updated Guide is the definition of “residence” provided by the FTA.
As defined by the FTA, the term ‘residence’ refers to any building used predominantly as a private home of a natural person, including fixtures and fittings belonging thereto and enjoyed therewith. This would include townhouses and villas, which comprise at least of cooking and washroom/bathroom facilities in addition to sleeping quarters.
It is also clarified by the FTA that any subsequent attachment to the residence would not be regarded as a “residence” for purposes of the refund scheme. Detached building on the same plot would also not be regarded as a ”residence” unless that building meets the definition of “residence” stated above on a standalone basis.
In this regard, the FTA provides several practical examples that may be helpful for UAE Nationals in determining its eligibility for the special refund request per new residence:
Example 1. a playroom is added to the residence at a later stage, the VAT on the building expenses will not be recoverable under the New Residences Refund Scheme.
Example 2. a second house with cooking, washroom, and sleeping facilities is subsequently built on the same plot, the VAT on the related building costs of the second house may be recovered under the New Residences Refund Scheme if all the other requirements are met.
The FTA highlights that buildings and units registered for commercial purposes, including hotel apartments, do not qualify as ‘residences’ for purposes of the New Residences Refund.
Revised deadlines for refund request
According to the VAT Refund process, the request must be sent to the FTA within 6 months from the date of completion of the newly built residence which is the earlier of the date:
- the residence becomes occupied; or
- when it is certified as completed by a competent authority in the UAE (the Building Completion Certificate).
In the updated Guide, the FTA confirms that in certain limited circumstances, the UAE National may apply for a refund after 6 months period has lapsed. Consequently, where any of the following events take place, the date of completion of the new residence may be considered the date on which the relevant event has ended, and this can be evidenced by officially certified documents:
- There are reasons which prevent the UAE National from submitting a complete refund claim on time, such as the absence of the UAE National in the UAE due to military service or illness;
- There is a legal dispute related to the new residence;
- There are pending technical issues due to which the residence has not become occupied even though the Building Completion Certificate has been issued.
The approval of the reason which prevents the UAE National from submitting a complete refund claim on time is at the FTA’s discretion, and the FTA has the right to request additional documentary evidence for its review.
In certain circumstances, a UAE National may be required to make retention payments to its contractors following the expiration of the 6-month period from the date of completion of the new residence.
In this regard, the FTA clarifies that where the UAE National intends to make such payments, the UAE National should indicate so during the submission of the initial request for the refund.
Additionally, care should be taken about the timeline for the recovery of retention payments. The VAT incurred on such payment can be recovered within 6 months from the date of making the payment subject to the provision of proof thereof, for example, a receipt.
How can we help?
Rethink as an entity provides VAT advisory, optimization, registration, implementation, compliance, and training services in Bahrain, UAE, KSA, and the GCC.
Our team of senior qualified tax advisors is happy to guide you through the process of a special VAT refund scheme for UAE Nationals and liaise with FTA in obtaining approval for the VAT Refund request.
Based on our local and international experience, we understand that VAT is a complex tax and would certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises
Assistant Tax Manager