ZATCA approves rules for VAT refund by real estate developers

The Zakat, Tax and Customs Authority (ZATCA) approved the conditions and terms for qualifying licensed real estate developers for value-added tax (VAT) refund, reported by the official gazette, Umm Al Qura.

ZATCA stated that eligible real estate developers are entitled to claim a refund on the VAT paid on real estate exempt supplies from the date of submitting a registration application to the authority, provided that the developers satisfy the required eligibility conditions. ZATCA’s board – in exceptional cases – may allow VAT redemption prior to the date the developer fulfilled all eligibility requirements.

Licensed real estate developers that meet all requirements will be allowed to apply as qualified persons for refunding input VAT incurred on tax-exempt activities related to the supply of real estate by way of ownership transfer, or to acting as “the owner of real estate supplies eligible for redemption.”

Conditions for a VAT refund stipulate that the property subject of the real estate supply eligible for redemption should be owned by the developer that possesses it as a buyer by virtue of a finance lease contract ending with ownership or a lease-to-own contract from a legally licensed party.

The contract should also state the tenant’s right to own the property or a promise to that, including a payment schedule specifying the value of the property rent and the value of the right of ownership, separately. In addition, the tenant should have regular accounts (financial statements) throughout the contract duration.

Eligible real estate developers may submit a refund application for monthly, quarterly or calendar year interval to redeem VAT incurred during that period. They also may change the redemption period.

In the event that a qualified real estate developer owns a share of the property subject of the refund application and that share was disclosed to ZATCA prior to submitting the application, they will be entitled to redeem VAT corresponding to that share based on their ownership percentage at the time of paying due taxes.