PUBLIC CLARIFICATION ON FARMHOUSE AND FARMLANDS
In order to give a supplementary clarity on the VAT status of farmhouses and farmland, the Federal Tax Authority has issued a public clarification on the Farmhouses and Farmlands. This clarification has been named as VATP008. It intends to provide clarity on the interpretation of the provisions in the context of farmhouses and farmland.
PRINCIPLES TO BE APPLIED WHILE DETERMINING THE VAT TREATMENT OF SUPPLIES OF FARMLAND AND FARMHOUSES
When discussing the VAT treatment of supplies by way of lease or sale, the following principles should be kept in mind :
- Farmhouses which meet the conditions applicable to residential buildings should be exempted from VAT. A building would be considered as a residential building where it is occupied by a person as their principal place of residence. Whereas the farm buildings that are not intended to be treated as a residential building should be subjected to the standard rate of VAT. This includes the farmhouses which are not used by a person as their principal place of residence.
- Farmlands covered with buildings or civil engineering works should be subject to VAT at the standard rate.
- Farmlands considered as bare lands are VAT exempted.
- Supply of farm as a whole is to be considered in light of the rules regarding composite or mixed supplies.
MEANING OF FARMHOUSES
CONDITIONS TO BE FOLLOWED FOR FARM HOUSES TO BE CONSIDERED AS RESIDENTIAL BUILDINGS
- They should be located on an agricultural land
- They are either occupied or intended to be occupied as a person’s principal place of residence
CONDITIONS WHERE A FARMHOUSE WILL NOT BE CONSIDERED AS A RESIDENTIAL BUILDING
A farmhouse will not be considered as a residential building where ;
- Any place is not a building which is fixed to the ground and can be moved without being damaged
- Any building is used as a hotel, motel, bed and breakfast establishment or a hospital
- A place is used as a service apartment where services in addition to the supply of accommodation are provided
- Any building is either constructed or converted without any lawful authority
The first supply of a farmhouse meeting the definition of a residential building within 3 years of its completion shall be zero-rated for VAT purposes. Any subsequent supply shall be VAT exempted.
OTHER FARM BUILDINGS
Buildings situated on agricultural land which do not meet the above conditions are treated as commercial buildings.
The VAT treatment of the supply of plots of farmland on which no buildings are situated is dependent on whether the land is considered to be bare land for the purposes of Article 44 of the Executive Regulations. It is thus important to consider each supply on its own individual facts to determine the correct VAT treatment.
Farmland would be considered to be a commercial land when it is covered with infrastructure or civil engineering work which is required to make it operational. Supply of such farmland would be
SUPPLY OF FARM
VAT treatment relating to the supply of a farm comprising of commercial land and buildings and residential buildings should be considered on whether it is a single composite supply or a mixed component supply. For determining the correct VAT liability, each case is to be considered on a case by case basis as the fact pattern differs.
The supplier should identify the following :
Whether the supply is a single composite supply or multiple supplies
To determine the VAT treatment of each supply
The supplier is required to identify the predominant usage of the farm to apply that VAT treatment to the whole supply. This is to be done in case the supplier makes a single composite supply of a farm where different elements are used for different taxable and non-taxable supplies. VAT liability is to be apportioned in case of supplying a farm which is not considered to be a single composite supply.