VAT Refunds for Real Estate Developers

24 October 2022

What you need to know

On 3 October 2022, the Board of Directors of the Zakat, Tax, and Customs Authority (ZATCA) issued Decision No. 04-08-22 providing guidance on how eligible persons under the Licensed Real Estate Developer (LRED) Scheme can obtain Value Added Tax (VAT) refunds from the authority. This follows a previous update that was issued on 19 June 2022. The full details of this update can be found in this Deloitte alert.

This guidance is relevant to developers who have been unable to recover VAT in relation to legacy construction projects in the Kingdom and includes potential relief for those who have not been able to secure LRED status. This is provided they can prove that this was outside their control.

Legacy expenses 

ZATCA has confirmed that VAT refunds can now be requested for eligible expenses incurred by LREDs. These expenses must have been incurred on or after the later of 4 October 2020 or the date the developer meets the key qualification requirements as an LRED. 

The VAT refund application must be submitted to ZATCA through a quarterly or annual claim with respect to the year 2022. This is to be filed no later than 30 June 2023. 

Allowing unlicensed developers to access tax refunds 

Developers who meet the criteria as LREDs but have not been able to obtain LRED status may also apply for tax refunds. They must demonstrate that their failure to obtain LRED status was for reasons beyond their control and in such cases the reclaims require ZATCA’s approval. It is not clear at this stage whether there is a cut-off date for these exceptional refund claims.  

Date of implementation 

The new rules apply with effect from 3 October 2022.

Key takeaways 

This is a helpful clarification which should facilitate securing legacy VAT refunds under the LRED regime and support developers who have not been able to secure an LRED status. However, it is worth noting that that there is a deadline for developers to be able to benefit from this opportunity.

How can Deloitte help?

Our dedicated team of Real Estate Transaction Tax (RETT) experts have successfully assisted a number of businesses in applying for and obtaining LRED certification from the Ministry of Housing. This is in addition to supporting them to attain eligible person status from ZATCA allowing them to file refund claims.  The Deloitte team can also provide advice and support with the following:

• RETT health check assessment
• Acquisition/merger and restructuring projects
• RETT advisory services on Build Own Operate Transfer Contracts (BOOT), Build Operate Transfer (BOT), Engineering, Procurement and Constructions (EPC) projects
• RETT compliance services 
• Refunds under the LRED scheme