New Residence VAT Refund Scheme for UAE Nationals
By Alia Noor, FCMA, CIMA, MBA, Oxford fintech programme, GCC VAT Comp Dip,COSO Framework.
Associate Partner Ahmad Alagbari Chartered Accountants, UAE
Construction of a building is a taxable supply under the UAE Vat Law. Hence, when a person constructs even a residential building, he has to pay tax for the expenses incurred during construction which includes building materials, contractor’s bill and many. Under the Vat Refund Scheme for UAE nationals the tax paid for constructing the new residence can be refunded with certain conditions.
The New Residence VAT Refund Scheme is a Special Refund Scheme available in UAE VAT Law. This scheme is applicable only to UAE Nationals who construct a Residential Building for his/her or for his/her family.
This is applicable when the person owns or acquires land in UAE on which he builds or commissions the construction of his own residence. Under this scheme, such a person will be entitled to claim a refund of the tax paid on the expenses of constructing the residence.
Conditions to be Eligible:
- Refund request should be submitted by a Natural Person
- He/she must be UAE National
- Tax Refund is in respect to the Expenditure incurred for constructing Residential Building
- Residential Building should be used by his/her or his/her family members for Residence
Eligible Expense for a Refund:
The VAT incurred for the following categories of expenses while constructing a new residence by a UAE National are eligible for VAT Refund under the scheme:
Below Content Source: FTA USER Guide
- Services of builders
- Services of architects
- Services of engineers
- Supervisory services
- Other similar services necessary for the successful construction of the residence
- Building materials that make up the fabric of the property (e.g. bricks, cement, tiles, timber)
- Central air conditioning and split units
- Decorating materials (e.g. paint)
- Dust extractors and filters
- Fencing permanently erected around the boundary of the dwelling
- Fire alarms and smoke detectors
- Flooring (excluding carpets)
- Other heating systems
- Kitchen sinks, work surfaces and fitted cupboards
- Lifts and hoists
- Plumbing materials
- Sanitary units
- Shower units
- Window frames and glazing
- Wiring when embedded inside the structure of the building
Expenses which are Not Eligible -Examples:
- Furniture which is not affixed to the building such as sofas, tables, chairs, bedroom furniture, curtains, blinds, carpets
- Electrical and gas appliances, including cookers
- Landscaping, such as trees, grass and plants
- Free-standing and integrated appliances such as fridges, freezers, dishwashers, microwaves, washing machines, dryers, coffee machines;
- Audio equipment (including remote controls), built-in speakers, intelligent lighting systems, satellite boxes, Freeview boxes, CCTV, telephones
- Electrical components for garage doors and gates (including remote controls)
- Garden furniture and ornaments and sheds
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.
VAT Refund claim under this scheme is required to be lodged within 6 months from the date of completion of the newly built residence. A newly built residence is considered as completed on:
- the date the residence becomes occupied (or)
- the date when it is certified as completed by a competent authority in UAE; whichever is earlier
Change of Use:
When a person who has claimed refund of VAT under this scheme, later uses the property for commercial use, he/she will be required to repay the tax that was refunded earlier.
While applying for refund one has to declare type of fund being used for the construction either personal or Housing Program Fund or both. Funder certificate needs to be provided if the construction is backed by Housing Program Fund.
Besides this bank account confirmation letter/certificate should be submitted for the confirmation and transfer of fund into the account.
The new residence VAT refund scheme is an assistive scheme for UAE nationals who newly construct their residence in UAE. They can reduce the expenditure incurred on account of VAT paid on the expenses of constructing the new residence. It is also a measure by the UAE Government to assist UAE nationals to construct residences. UAE nationals can note the conditions of this scheme and use it for their benefit.
How to apply / Application Process:
- Applicant has to submit the “New residence VAT refund request” to FTA on its E-service portal by creating a new taxable person account/special refund.
- Information regarding the applicant and the property has to be submitted along with the refund request.
- After the refund request has been submitted, FTA will review and will send an email asking any further information required.
- Once the FTA has reviewed and approved the eligibility of your refund application, it will be forwarded to verification body (third party) for further checks.
- During this verification additional documents may be requested by the verification body to check the application such as contracts, invoices, proof of payments etc.
- Verification body will review and submit the report to FTA about the application within 10days from receipt of documents.
- FTA will take further 10 days to make a decision after receiving report from Verification body
- Following this, if approved by FTA the refund will be transferred to the applicant within 5 business days.
Documents Required to be submitted for VAT refund claim by a UAE national on building new residence
Initially while applying for the refund, the applicant is expected to submit the below documents along with the refund request.
- Copy of Emirates ID and family book
- Copy of declaration from the funding body or institution, if the construction was funded by any such body or institution
- Copy of the construction plan
- Copy of the completion certificate and building permit of the property
- Proof to identify the applicant as the owner of the plot of land in which the building was constructed
- Document stamped by bank to identify the bank account details
- Document to evidence the date the building is occupied as applicable
It is to be noted that the authority may ask for additional documents or clarification on later stage during their verification of the refund application.