The Oman Tax Authority has issued a VAT Guide for the Real Estate sector has been saved
The Oman Tax Authority has issued a VAT Guide for the Real Estate sector
The Oman Tax Authority (OTA) has recently issued its official Value Added Tax (VAT) Guide in Arabic on Real Estate transactions in Oman. This note is aimed towards businesses operating within the property sector in Oman, as well as companies that may encounter Real Estate specific transactions.
VAT treatment for Real Estate transactions
In accordance with the Oman VAT Law, the Guide defines different supplies that will either be exempt, standard-rated, or zero-rated. Supplies of undeveloped land, resale of residential property and renting of residential property will be exempt from VAT. Other supplies related to Real Estate - sale and renting of commercial property (including hotel apartments, warehouses, stores, and car parking), the first supplies of residential property and other cases not specifically zero-rated or exempted will be subject to 5% VAT.
Real Estate transactions for property located in Special Zones could qualify as zero-rated supplies, subject to meeting of the conditions provided in the Oman VAT Executive Regulations and guidance issued by the OTA.
What would constitute Real Estate?
The term “real estate” means any specified area of land, building, structure, or engineering work permanently attached to the land, including any goods affixed to any building, structure, or engineering work. Permanent fixtures/constructions (e.g. buildings not erected on a temporary basis), car parking, hospitals etc. are considered to be real estate. Temporary fixtures/constructions which can be moved/removed without damage, like temporary housing, equipment, furniture (not permanently attached to land), and mobile homes are not considered to be real estate.
Application of VAT on developed vs. undeveloped land?
The supply of developed land is subject to 5% VAT, whereas supply of so-called undeveloped land is exempt from VAT. Where a certain degree of construction/structural work is completed or civil engineering work is performed, the land is likely to classify as developed land. However, if there are no man-made structures, or partially completed structures (above the surface or in the ground below the surface), the land is likely to be classified as undeveloped land. The Guide clarifies that this needs to be evaluated on a case-by-case basis if land constitute as developed or undeveloped.
There could be cases where the supply of land at the point it is first leased to the tenant could constitute undeveloped land; however, once the tenant begins to develop on the land the nature of the landlord’s supply will change. As per the guide, from the point the land ceases to be undeveloped land, the landlord would need to charge 5% VAT to the tenant. VAT would be applicable for a period after the change in the nature of the relevant supply.
Supply of residential and commercial Real Estate?
The Guide helps determine when a Real Estate will constitute as residential or commercial real estate. It also provides for VAT treatment on different VAT transactions relating to residential and commercial property:
Supply of car parking: Renting of car parking will be subject to 5% VAT. However, if the supply of car parking forms part of a single supply of renting of residential property, it will be treated as exempt supply. The guide further clarifies that determining when a supply will constitute as single or multiple supply.
Service charges relating to residential real estate: Services provided by the developer/owners regarding the maintenance of property, electricity, internet, water, administrative services, etc. in relation to residential properties will likely be subject to 5% VAT, unless such service(s) constitute as part of a single supply of renting of a residential property.
VAT treatment on mixed-use Real Estate: Where a property or plot of land has clear and distinct sections which are put to different uses, a specific VAT treatment will need to be applied. For example, a property that has retail units on the ground floor level and residential units on upper floors will be considered a mixed-use real estate. In this case, the VAT treatment will be determined based on the use of the part of the real estate which is being supplied i.e. supply of the commercial unit will be subject to 5% VAT; whereas, a supply of a residential unit (other than the first supply) will be exempt from VAT. Where mixed-use real estate is sold in its entirety, it is necessary to assign the consideration received between the different parts of the property.
VAT recovery on development costs: Input VAT incurred on the development cost of new commercial real estate is recoverable in full, given that all intended supplies of that property are taxable.
Furthermore, where a taxable person incurs costs of constructing a residential building, all VAT incurred on the costs of such development will be recoverable on the basis that the costs relate to the standard-rated first supply. Any
future supplies of the building by that taxable person (e.g. a subsequent lease, which will be exempt from VAT after the first supply) will be ignored for the purposes of input tax recovery.
Place of supply of real estate and related services
The place of supply of property and related services is where the real estate is located. The Oman VAT Law will apply if the place of supply of the property in question is Oman. The Guide further provides that a supply of services is deemed to relate to property where the supply of services is directly connected with the real estate. The Guide sets out examples to help determine if the services are directly connected with a property or not.
Implication to non-resident person: It has been clarified that, where a non-resident person makes any taxable supplies related to any property located in Oman, they may likely be required to register, charge and account for VAT. This will depend upon the nature of taxable supplies made by a non-resident person and on VAT registration of the recipient of taxable supplies. Where the real estate property itself is sufficient to create a fixed establishment for the non-resident person, the non-resident person will be considered a resident in Oman and therefore needs to consider the application of mandatory VAT registration thresholds.
There are no rules in place for determining the date of supply in relation to retention payments. As per the Guide the normal time of supply rules will apply.
Where the transaction in question qualifies as continuous supply, the date of supply will be the earliest of:
- The time the retention payment has been made; or
- The date specified on the tax invoice in relation to the retention; or
- 12 months from the date the work has been signed off on as complete (to be determined as per the contract signed between parties).
However, if the transaction is considered to be a single supply, the date of supply will be the earliest of the following:
- The date the services were completed (to be determined as per the contract signed between parties); or
- The date of issuing the tax invoice; or
- The time the retention payment has been made.
The Guide highlights useful examples to help determine the VAT liability on transactions staggering over the VAT implementation date. For continuous supplies that are partially made before and after the date the law became effective (according to a contract concluded before 16 April 2021), only the part that was made after the effective date will be subject to VAT; and therefore the supplier must specify the supplies that were made before and after this date.
From a valuation perspective, consideration will be considered as including VAT in the event that the contract does not include a clause related to VAT.