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Tax flash: VAT clarification on "means of public transport" and "farm houses and farm land"

Tax flash: VAT clarification

The UAE Federal Tax Authority (FTA) has issued two new public clarifications


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tax flash

The UAE Federal Tax Authority (FTA) has issued public clarifications on “means of public transport” (VATP007) and “farm houses and farm land” (VATP008).

Summary of the clarifications:

Means of public transport

  • Discusses the definition of public transport and how this relates to the zero rating for the means of public transport (i.e. the supply of buses or trains to be used for the public transportation of 10 or more passengers).

  • In particular only buses, for example, used for mass transport without restrictions on specific users would qualify for zero rating. This means that the sale of buses for the following uses would not qualify for zero rating but be subject to VAT at 5%:

    • school buses
    • buses to transport employees to and from their place of work
    • shuttle buses transporting guests from hotels to other locations (e.g. malls, the beach)

  • The clarification also stresses that the VAT treatment of the means of transport does not impact the VAT treatment of the supply made with such means. For example, the local transport of passengers in a qualifying means of transport (which includes not only buses etc. but also motor vehicles and taxis) is an exempt service for VAT purposes.

View the full FTA clarification here.

Farm houses and farm land

  • In continuation to the recently updated Real Estate Guide, this clarification elaborates further on the VAT treatment of the sale or lease of farm houses and farm land.
  • It notes as a general principal that farm houses being used as a “principal place of residence” would qualify as “residential buildings” and accordingly, supply of these would be exempt (or zero rated in case of first supply). Farm houses or other buildings not used as a principal place of residence, such as weekend homes and storage spaces like barns and granaries, would be subject to VAT at the standard rate.
  • Farm land covered by commercial buildings, civil engineering works (such as irrigation system, roads, utility connection etc.) would be treated as commercial land and subject to VAT at the standard rate. However, farm land which is not covered and merely developed for the purpose of growing crops would likely be treated as “bare land” and hence, exempt from VAT.
  • For the supply of a farm as a whole comprising commercial land, commercial buildings along with a residential building, the supplier will need to consider the VAT treatment after assessing if it is either a composite supply with VAT treatment following the main component or a mixed supply with the VAT treatment to assessed for each component being supplied.

View the full FTA clarification here.

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