VAT Treatment on Residential and Commercial Real Estate

As part of the wider area of immovable property, the appropriate treatment of residential and commercial real estate is probably one of the more complicated. And if we talk about the real estate supply in Oman, it is taxable at a standard rate of Value Added Tax (VAT). Within the scope of real estate, from undeveloped land to a building attached to land is included. However, certain real-estate supplies are exempt from VAT in Oman. These real-estate supplies include undeveloped land and more

What is Value Added Tax (VAT)?

Consumption tax on goods and services is known as Value-added tax (VAT). From initial production to the point of sale, it is levied at each stage of the supply chain where value is added. The amount of VAT is calculated on the basis of the cost of the product minus any costs of materials. If you don’t know, those costs of materials have already been taxed at a previous stage. It is based on consumption rather than income. VAT is charged equally on every purchase in contrast to a progressive income tax. 

When it comes to the real estate industry, Value Added Tax (VAT) is an important consideration in commercial property transactions. It is because the irrecoverable VAT can impact returns. It is a tax of goods and services that is calculated by reference to the value of taxable supplies. Interestingly, it raises government revenues without charging wealthy taxpayers more. It also is considered a simpler, easiest, and more standardized form of tax. Substituting a VAT for other taxes would undoubtedly close the loopholes of tax. Also, it provides a stronger incentive than a progressive income tax does to earn more money.

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Value-added tax (VAT) is a flat tax that is similar to a sales tax in some respect that is levied on an item. However, the portions of the tax amount in VAT are paid by different parties to a transaction, unlike sales tax. This change not only encourages saving and discourages frivolous spending but also confers a stronger incentive to earn. VAT provides an opportunity to modernize the indirect tax system y making it simpler, efficient, and appropriate. At each and every stage of the production and distribution chain, this tax is levied on value-added on a good or service. 

Residential Real-estate VAT treatment:

When any property or building or part of a property or building is intended and designed for residential purposes, then it is known as residential real estate. It consists of all the required approval from the relevant competent authority. In simple terms, any property is defined as a residential property. It includes property such as a residential house, apartment, etc. However, there are some kinds of properties that will not be considered residential property. Also, it is not an exhaustive list, rather it is just an indicative list. 

  • Any serviced apartment such as hotel apartments.
  • Any property or building that is used as a hospital, industrial compound, hotel, commercial compound, tourist compound, bed and breakfast establishment, etc.
  • Any structure that is not fixed to the group can be moved without damage.

If you don’t know, a standard VAT rate is only applied to the first sale of residential property is 5%. If there is any subsequent sale of residential property, it will be exempt from VAT. That is why the rental of residential property is exempted from VAT. The agreement of rental of a residential property gives the right to occupy a property for residential purposes. However, it will be exempt only if it meets the following conditions:

  • If in Oman, the agreement is in accordance with the relevant tenancy laws.
  • If the right to occupy the property is for more than consecutive 3 months.

Commercial Real-estate VAT treatment:

Any property other than underdeveloped land and residential property is defined as commercial property. To elaborate, any property other than the listed below will be classified as commercial property:

  • A bare land that has partially completed structures on it or no man-made structures, above the surface or in the ground below the surface
  • Any building, or part of a building that is intended and designed for residential purposes. Also, if it has the required approval from the relevant competent authority.

Whether for sale or lease, the supply of commercial real estate is subject to VAT at the standard rate of 5%. This tax is calculated on the total consideration that is received for the supply of commercial real estate. The businesses can recover input VAT paid on all the expenses because the supply of commercial property is taxable. Besides that, the businesses can also recover the cost incurred in relation to such supply. 

Determining if VAT is applicable or exempt in real estate often becomes a little complex because of the different nature of real-estate supplies. When making the supply, businesses need to understand the different exemptions that are provided in the law and then apply. It could lead to wrong VAT treatment if it is not rightly classified and will invite penalties and fines. 

Why Peniel Computer is the best VAT consultant in Oman?

Determining if VAT in Oman is applicable or exempt often becomes a little complex when there are different nature of real-estate supplies. That is why businesses need to understand the different exemptions provided in the law. Only after that, they should apply those when making the supply. It could lead to wrong VAT treatment if it is not rightly classified and invite penalties and fines. Peniel Computer is a complete business management software with a VAT solution. You can get started with VAT and invoice in just a few simple steps. 

You can manage all types of supplies, record and generate tax invoices, generate accurate VAT returns, print bilingual tax invoices, and much more with Peniel Computer’s VAT consultant in Oman. In that, a complete business management software, Tally Prime can be a VAT solution for Oman. You can get started with VAT and invoicing in a few mins with just 3-4 simple steps. You can manage all types of supplies, record and generate tax invoices, generate accurate VAT returns, print bilingual tax invoices, and much more using TallyPrime.

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