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- Prerequisites for Understanding Real Estate in the KSA: FAQs
Prerequisites for Understanding Real Estate in the KSA: FAQs
Types of Real Estate
Residential:
- Homes (flats or apartments)
- Primary residence of people
- Student accommodation
Commercial:
- Property for business purposes
- Property for non-residential purposes
Taxable/ VAT Registered Person
Someone who carries out economic activity in the KSA
Resident
Someone who has a place of residence in the KSA for VAT purposes
Non-Resident
Someone who has no place of residence in the KSA
Sale of Residential Property
Sale of residential real estate is taxed at the standard rate (5%). However, if prior to the supply, the property was used or intended to be used as a permanent residence of the seller, or one of the seller’s relative (up to the fourth degree), then its sale will not be considered an economic activity.
Rent of Residential Property
The rent of residential property is exempted from VAT.
Lease of Serviced Apartments
Lease of serviced apartments are taxed at 5%. Units that qualify as residential units and are used as a regular residence are exempted from VAT.
Sale of Commercial Property
Sale of property for commercial purposes is taxed at the standard rate (5%).
Rent of Commercial Property
Rent of property for commercial purposes is taxed at the standard rate (5%).
Lease Contracts Signed before January 1st 2018
Only the portion of the lease related to the supply that will take effect on or after January 1st 2018 will be subject to VAT (5% for commercial property and exempted for residential property).
Sale of Real Estate
Sale of real estate includes:
- Residential property (flats or apartments)
- Commercial property
- Transfer or ownership of bare or undeveloped land
- Partly completed construction work
Transfer of the Ownership of Land
The transfer of ownership, or any other transaction which gives full ownership of the property to the buyer is considered as a standard rated supply (5%).
Constructions Services
Construction services are taxed at 5%. These includes activities of sub-contractors on projects such as:
- Engineering, Procurement and Construction Contracts (EPC)
- Lump Sum Turn Key (LSTK) contracts
Input VAT in Real Estate
You can deduct input in the following cases:
- VAT is charged on materials, sub-contractors or other suppliers in the monthly or quarterly period in which it is incurred
- Proof of taxable invoice with evidence of input VAT paid approved by the ZATCA
You cannot deduct input VAT in the following cases:
- VAT exempted activities (in residential real estate)
- Non-economic activities (like entertainment and motor vehicles)
Non-Residents Supply of Real Estate
Suppliers who are not residents of the KSA cannot charge VAT for real estate service provided in the KSA. It is the duty of the receiver of these supplies to account for VAT under the reverse charge mechanism.
For example, if Company A, based in Kuwait, charges Company B for designing the interiors of a building in Saudi, then the company in Saudi, i.e. Company B must account for VAT applicable under the reverse charge mechanism.
Expenses for Construction
You can deduct input VAT paid on expenses incurred on construction if the following conditions are met:
- Expenses are incurred during the initial stages of construction (before project is completed or payments received)
- Expenses are part of the taxable supplies done by a taxable person
You cannot deduct input VAT on expenses under the following conditions:
- Expenses are not part of the economic activities of the business
- Entertainment, certain motor vehicle expenses
Resale of Property
If you purchase a house from a family, make improvements to it and sell it, VAT is applicable on all the relevant supplies.