The General Authority of Tax and Zakat (GAZT) has released the rules and conditions for real estate developers to be considered eligible for the recovery of input tax related to exempt real estate supplies. The announcement was made through Ministerial Decision No. 1754 dated 30 November 2020 and comes into effect on the date of publication. 

In order to be eligible for the recovery of input tax, the developer must be engaged in exempt real estate activities defined in the Value Added Tax (VAT) executive regulations and must only seek the recovery of tax for real estate activities that have been defined as exempt.

The real estate developer must have one of the following legal forms:

• Sole proprietorship under a commercial registry;
• Real estate investment funds;
• Cooperative organizations or institutions; or
• Any other legal entity under the Companies’ Law.

The real estate developer must hold a valid license to operate in accordance with the activities approved by the Ministry of Commerce and the relevant competent licensing and registration authorities, and must  be licensed to conduct any of the following activities:

• Sale, lease, purchase and development  of real estate;
• Sale, purchase, and partitioning of land and properties, as well as off-plan sale and leasing; and
• Construction of buildings.

The real estate developer must also be approved by the Ministry of Housing (“MoH”) as an eligible real estate developer based on the above and in accordance with criteria determined by the MoH and the respective associated organizing agencies. GAZT will ensure that the developers satisfy the required eligibility conditions. 

Persons who do not currently qualify to be treated as real estate developers will be able to recover VAT incurred on expenses made on or after 4 October 2020, only for the real estate supplies that have been defined as exempt in Royal Decree A84 (see our previous alert), on the condition that they rectify their eligibility status based on the conditions outlined by GAZT before January 2021. 

• Real estate developers should confirm with the Ministry of Commerce that they are licensed to operate in one of the categories outlined above.
• Next, developers should approach the Ministry of Housing to obtain confirmation that they have approval to carry on the activities of a developer listed above.
• Once this approval is confirmed, the developers are eligible to submit applications for refunds of VAT.
• Non-eligible developers have up to 31 January 2021 to become “eligible” and thereby deduct input VAT incurred on or after 4 October related to their real estate activities.
• All other businesses have up to 31 December 2020 to deduct VAT on real estate development expenses incurred before 4 October 2020.

We shall continue to keep you up to date on any further developments. In the meantime, our teams are available to discuss the rules and conditions and assess their impact on your business.