VAT Treatment of Farm Houses and Farm Land

Tax Treatment of Different Types of Land:

  • Bare land – Tax Treatment : Exempt from VAT – Article 52 of Cabinet Decision 0f 2017
  • Residential Land – Tax Treatment : First Sale within 3 Years of completion Zero Rate, After 3 Years of completion sale or lease exempt from VAT
  • Commercial Land : Tax Treatment – Standard Rate of VAT Applicable

Main Issue:

How to classify Farm land and Buildings in above 3 categories and applying the correct VAT Treatment?

Summary of the VAT Treatment of the issue:

  • Farm houses that meet the definition of residential building shall be either zero rated or exempt. The best indicator of the building being residential building is that it shall be principal place of residence of the person.
  • Other farm houses that are not used as principal place of residence shall be treated as commercial property and VAT at standard rate of 5% is applicable.
  • Farm Land that is covered with buildings and civil engineering works shall be treated as commercial and standard VAT is applied.
  • Farm Land that has no buildings or civil engineering works shall be treated as bare land and is exempt from VAT.
  • Important point to consider whether Farm House and Farm Land form Single Composite supply or Mixed Supply. In case of Composite supply the VAT treatment of predominant factor shall prevail otherwise in mixed supply every element shall be treated separately to determine the correct VAT treatment.

Some Important Points 

Farm Houses that meet the Definition of Residential Building:

Farm House shall be considered as Residential where it is:

  • Principal place of residence of the person

Farm House shall not be considered as Residential where it is:

  • A Place that is not a building fixed to the ground and can easily be moved without being damaged
  • Buildings that are used as hotel, motels or hospital etc.
  • Serviced Apartment
  • Unlawfully Constructed Building
  • Farm houses not used as principal place of residence such as weekend homes
  • In case part of the house is used as residential and part for other purposes, the part that is used for residence may qualify as residential house.

 

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