VAT in GCC
Sector Impact > Construction
Zero rated: Construction of new buildings will be zero rated. The supplier can claim the input tax credit on all the purchases done for the construction activity.
Regarding the construction of new buildings, the following goods and services are zero-rated:
- Construction services relating to new buildings;
- Goods supplied by the person supplying the construction service in the course of constructing a new building.
Construction of a new building includes an extension of an existing building, but excludes other work on existing buildings such as refurbishment, restoration and conversion.
A building is defined in the Executive Regulations as a “…residential, commercial or industrial building, such as a dwelling, offices, factories, workshops, retail stores, multi-storey car parks, power stations, oil refineries, liquified natural gas stations or oil fields.” A building is considered as “new” when it has not been occupied yet.
The Executive Regulations set out examples of services that qualify for the zero-rate as well as examples of services that do not qualify – as shown in the below table.
|Qualifying for the zero-rate||Not qualifying for the zero-rate|
Goods qualifying for the zero rate are those which are supplied by the person constructing the new building in the course of the construction services. These goods must be used, installed or incorporated into the building or the land.
The Executive Regulations set out examples of goods that qualify for the zero rate as well as examples of goods that do not qualify – as shown in the following table.
|Zero rate applicability for construction goods Qualifying for the zero-rate||Not qualifying for the zero-rate|
It is expected that construction contracts for new building have some components that are subject to VAT at the zero-rate and others that are subject to VAT at the 5% standard rate. Where it is the case, it is required to apportion the agreed consideration, based on the fair market value, between the goods and services subject to VAT at the zero-rate and those subject to VAT at the 5% standard rate.
Sector VAT News Update
Sector impact analysis is provisional based on the GCC Draft and may change when the country issues the relevant VAT laws.