By Sabry El Khawas and Mahmoud Elharidi
In a judgment handed down on 13 September 2022, the Dubai Court of Cassation set a new principle for real estate transactions, ruling that if the property purchase process began before the announcement and application of VAT, the Purchaser must pay VAT to the Seller. If the handover was after the date that the Decree implementing VAT came into effect, the Seller would be responsible for passing this VAT to the Government.
This is particularly important for real estate companies that sold units and received payment before the Decree was effective, but did not hand over the units until after the Decree was effective as they will need to ask the Purchaser to pay the VAT.
The Court confirmed that this principal applies where the seller has calculated the VAT and paid it to the authorities pursuant to the provisions of Decree No.8 for the year 2017 on Value Added Tax which came into effect on the 1st of January 2018 (the “Decree”).
The Court shed light on article 4.2 from the Decree stating that the supply of real estate, including any sale or lease contract, is subject to this tax. The Court also mentioned in its judgment Article 80 from the Decree which states that (if the supplier received the consideration or part of it or issued an invoice for goods or services prior to the effective date of this Decree, Then the date of supply shall be deemed as the date of enforcement of this Decree if it was made after the date of enforcement of the Decree-Law No. 8 of 2017. B- putting the goods under the control of the recipient).
Therefore, in the event of signing the contract or paying the full price for the building before the enforcement of the Decree, but performing the actual handover of the building after the date of enforcement, the transaction will be subject to VAT. In practical terms, real estate companies that sold units and received payment before the Decree was effective, but did not hand over the units until after the Decree was effective, will need to ask the Purchaser to pay the VAT.
For more information, or assistance, contact:
Ali Al Zarooni
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