How is VAT applied to a mixed-use building in the UAE?
By the use of each part. The FTA real estate guide says a supply of a commercial unit is taxed at 5% and a residential unit is zero-rated on first supply and exempt afterwards. If the whole building is sold, the price is apportioned between the residential and commercial parts and each is taxed accordingly.
On this page
VAT on construction costs
VAT on building a mixed-use development is normally recoverable in full, because the commercial part is taxable and the residential part's first supply is zero-rated. Later exempt residential leases are ignored for that recovery.
Running costs
VAT on repairs to the commercial part is recoverable, VAT on repairs to the residential part is not, and shared costs such as roof repairs are apportioned as residual input tax.
How SupaJack Construct helps
Supplier bills in SupaJack Construct record the VAT charged with the supplier's TRN, and projects keep their own costs, so the input VAT on each development can be identified for recovery or apportionment.
Related tools and guides
See the VAT guide for contractors, the VAT calculator, the payment certificate calculator, the retention calculator, finance and VAT in SupaJack Construct, the answer on whether a payment certificate triggers VAT and the meaning of e-invoicing.
Worked example
A developer sells a completed building with shops on the ground floor and apartments above for AED 50,000,000, 30% attributable to the shops. AED 15,000,000 is standard-rated with AED 750,000 VAT, and AED 35,000,000 is zero-rated as the first residential supply.
Questions people ask
Is the whole building taxed at one rate?
No. Each part follows its use.
Is VAT on construction recoverable?
Normally in full.
How are shared repairs treated?
As residual input tax, apportioned.