VAT public clarification on Change in the permitted use of a building

VAT public clarification on Change in the permitted use of a building

The UAE Federal Tax Authority (FTA) has issued a public clarification on the effects of a change in the permitted use of a building for VAT purposes.


Under VAT law, the sale or lease of commercial property is subject to the standard 5% VAT. The sale or lease of residential property generally is exempt from VAT with the exception that a 0% VAT rate applies if it is the initial sale or lease of the property within three years of completed construction.

The new guidance clarifies that where a purchaser of real estate changes the permitted use from commercial to residential (or vice versa) subsequent to the purchase, the VAT treatment of such purchase remains the same; however, any future sales or leases will be subject to VAT based on the new permitted use.


If a building is sold as a serviced hotel apartment building (which is considered commercial for VAT purposes and is subject to 5% VAT and subsequently, the purchaser changes the permitted use to residential use only the preceding sale will remain subject to 5% VAT whereas the purchaser should not account for VAT on the subsequent exempt supply.

If a building is sold as a residential building but the permitted use is subsequently changed to use as a serviced/hotel apartment, the VAT treatment of the original sale will remain the same regardless of the purchaser’s subsequent use of the building. After the permitted use is changed, the purchaser will have to account for 5% VAT on the supply of the building to a third party if a purchaser is a Taxable Person.


The VAT treatment of the sale of a building is independent of the subsequent supply thereof by the purchaser, and will, therefore, remain the same, regardless of whether the purchaser amends the permitted use to either lease or sell the building to a third party as a residential building or hotel/serviced apartment.

If you are looking for help regarding VAT services in UAE, we are here to assist. For more details on other services offered by us, Contact Us

Call: +971501042665

Read More:

Top Reasons why you should be Interested in VAT Registration and VAT Experts in the UAE

How VAT works in Residential Properties

Amnesty Scheme for VAT

How will VAT affect Businesses in UAE?



Quick Contact
Call us Whatsapp
Quick Contact