Issues Addressed:
• VAT treatment in case of Sale of Building
• Date of Supply Rules in case of supply of building
• VAT treatment if the purchaser subsequently changes the permit use of Building
1. The supply of a building may be standard‐rated, zero‐rated or exempt from VAT, depending on the nature of the building and the permitted use thereof at the date of supply.
Type of Supply and its taxability
- FIRST Supply of a Residential Building within 3 years of completion – Zero Rated
- Supply of a Residential Building, unless it is Zero‐Rated- Exempt
- Supply of a Non‐ Residential building- Standard Rated (5%)
Notes:‐
*Supply of a building covers both SALE and LEASE
*Supply shall be treated as Zero‐rated irrespective of whether the building is supplied as a whole or part
2. VAT is a transaction‐based tax, the VAT treatment shall be determined independently at each date of supply.
Type of Supply and Date of supply
In case of Sale of a building date of Supply is the earlier of the following:
- Ownership of the building is transferred to the purchaser;
- On which the purchaser took possession of the building;
- Payment was received in respect of the supply of the building; or
- A Tax Invoice was issued in respect of the supply of the building
In case of Lease of a building with periodic payments or consecutive invoices date of Supply is the earlier of the following:
- Any Tax Invoice is issued in respect of the lease of the building;
- Any payment is due as shown on the Tax Invoice;
- Payment is received in respect of the lease of the building; or
- 12 months lapsed from the date the right to use the building was provided to the lessee.
Notes:‐
- Where VAT is due because a payment is made or a tax invoice is issued, the VAT is only due to the extent of that payment or amount stated in the tax invoice. As such, VAT can be accounted for on the amounts as they are billed or paid.
- any change in use before the date of supply would be disregarded for purposes of determining the VAT treatment of the sale as only the permitted use on the date of supply would be considered;
- any subsequent change in the permitted use of the building shall not impact the VAT
- treatment of the preceding sale of the building.
3. If a building was sold to a purchaser and the permitted use is subsequently changed to use as a serviced/hotel apartment by the purchaser, the VAT treatment of the original sale will remain the same regardless of the purchaser’s subsequent use of the building.
Let’s understand the above with the help of following cases:
Case 1: Sale of a residential building to a purchaser who subsequently leases or sells the building to the third party by amending the permitted use of the residential building as a hotel apartment
First Supply‐ where seller sells residential building to purchaser
VAT treatment‐ If it is the first supply of the building within three years of completion, the supply may be zero‐rated; otherwise the supply might be exempt.
Second Supply‐ Purchaser amends the permitted use of building and sells it to Third party VAT treatment‐ This supply is subject to 5% VAT if the purchaser (owner of the building) is a Taxable Person, i.e. registered for VAT or required to be registered for VAT.
Case 2: ‐Acquisition of a non‐residential building and the subsequent supply thereof by amending the permitted use of building as a residential building
First Supply‐ where seller sells non‐ building to the purchaser
VAT treatment‐ This supply is subject to 5% VAT if the seller is a Taxable Person;
Second Supply‐ Purchaser amends the permitted use of building and sells it to Third party
VAT treatment‐ This supply is exempt from VAT.
Conclusion
The VAT treatment of the sale of a building is independent from 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.