What to take into your next appraisal
- Zero-rated and exempt supplies have different implications for the input-tax analysis.
- An accounting tax receivable does not pay a contractor invoice.
- Mixed-use development requires a supported attribution method and separate cash timing.
Start with the supply, not the building label
The FTA’s real-estate FAQ states that commercial supplies are generally subject to 5% VAT, residential supplies are generally exempt, and the first supply of a residential building through sale or lease within three years of completion is zero-rated. These are starting classifications with conditions, not a determination for every asset described as residential.
Identify the supplier, registration position, nature of the building, completion evidence, first-supply status and transaction date. Serviced accommodation, commercial components and later supplies need their own assessment. Obtain a tax adviser’s confirmation before applying the treatment to an actual project.
Sources: UAE Federal Tax Authority: How will real estate be treated?
Attribute input tax before forecasting recovery
List construction, professional, land and operating costs separately. For each invoice identify net amount, VAT charged, supply date and the activity it supports. Have the adviser establish recoverability and any allocation between taxable and exempt activities. Do not infer recovery solely from the fact that the developer paid VAT.
Carry non-recoverable input tax into project cost. Carry recoverable amounts into the tax-control account until offset or repaid. The project cashflow includes the gross invoice payment when due, even where the final economic cost is net of recoverable tax.
Worked example: economic cost versus funding need
Assume a fictional qualifying construction invoice is AED 2m net plus AED 100,000 VAT. For this example only, the tax adviser has confirmed full input-tax recovery, with the cash recovery forecast three months after payment. No other tax balances are included.
Economic construction cost is AED 2m, but the payment-date cash requirement is AED 2.1m. The later AED 100,000 inflow releases the temporary funding. At an assumed 8% simple annual bridge rate, carrying AED 100,000 for three months costs AED 2,000, before fees.
| Event | Project cost | Cash movement |
|---|---|---|
| Net construction cost | AED 2,000,000 | Included in gross payment |
| Invoice payment | No extra cost for recoverable VAT | −AED 2,100,000 |
| Assumed later recovery | Clears VAT receivable | +AED 100,000 |
| Three-month bridge interest | AED 2,000 | −AED 2,000 |
Keep mixed-use and timing risks separate
If only AED 60,000 of the input tax is recoverable under the advised attribution, economic cost rises by AED 40,000. A delayed repayment of the recoverable portion is a separate liquidity scenario. Combining those two changes into one VAT contingency conceals their different effects.
For a phased project, classify each sale or lease and the supporting costs. Reassess assumptions when the planned use changes from sale to hold, or when commercial space is introduced. Record the revision and the evidence rather than silently changing the project-wide rate.
Use a tax assumptions register
Present a short register alongside the appraisal: transaction, assumed treatment, source, adviser, unresolved condition and cash date. Mark recovery timing as a forecast. Reconcile the forecast VAT control account to actual returns as the project proceeds.
- Does the assumed supply meet the relevant residential definition and timing conditions?
- Which costs have direct attribution and which require allocation?
- Are invoice and registration evidence available?
- What funds the gap if recovery is later than forecast?
Sources and further reading
- How will real estate be treated? UAE Federal Tax Authority
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