UAE Real Estate Management Entities – Accounting for VAT
VAT Public Clarification: Dubai Owners’ Associations and Management Entities
On 3 November 2019, all rights and obligations of Dubai Owners’ Associations were transferred to Management Entities, which resulted in Dubai Owners’ Associations no longer making taxable supplies.
Dubai Owners’ Associations were, therefore, required to apply for VAT deregistration within the period prescribed in the tax legislation of 20 business days; that is, no later than 4 December 2019.
Owners’ Associations – VAT deregistration
On the basis that all of the Owners’ Associations’ rights and obligations were transferred to Management Entities, the Owners’ Associations no longer make any taxable supplies.
According to Article 21(1) of the Decree-Law, a registrant shall apply for tax deregistration if he stops making taxable supplies.
Article 14(2) of the Executive Regulation3 requires that a registrant applies for deregistration within 20 business days from the date the registrant stops making taxable supplies or where the value of taxable supplies made over the past 12 months is less than AED 187,500.
Based on the above, any VAT registered Owners’ Association that failed to apply for VAT deregistration within 20 business days from the date it stopped making taxable supplies is liable for an administrative penalty under Article 25(1)(d) of the Tax Procedures Law”. The administrative penalty for failing to submit a deregistration application within the prescribed period is AED 10,000.
Management Entities – Accounting for VAT
For VAT purposes, the Management Entity is not regarded as an agent who is just managing the building on behalf of the owners of the units but, as a result of Law No. 6, as the person supplying goods and services to the owners of the units.
The management of a Jointly Owned Real Property constitutes a taxable supply of services, which is subject to 5% VAT, regardless of whether there are limitations on the use of service charges collected.
As a registrant making taxable supplies, the Management Entity, under Article 65(1) of the Decree-Law is required to issue valid tax invoices to the recipients of these supplies.
If the Management Entity fails to issue valid tax invoices and tax credit notes (where applicable), the Management Entity would be liable for administrative penalties, regardless of whether the Management Entity issued the invalid documents or whether the documents were issued via any other third party system. The administrative penalty for failing to issue valid tax invoices and tax credit notes is AED 5,000 per document.
The Management Entity is required to report the amounts received (in the form of service charges or otherwise) and the related VAT amount in Box 1b of its VAT return. The Management Entity is entitled, under Article 54(1)(a) of the Decree-Law, to recover VAT paid in respect of goods and services acquired to manage the Jointly Owned Real Property, provided the it obtains and retains valid tax invoices addressed to the Management Entity.
The Management Entity, as a VAT registrant, is liable for any penalties which may arise as a result of submitting incorrect tax returns, including instances where VAT was not declared on service fees charged to owners.
Learn More: FTA Authority