The UAE Federal Tax Authority (“FTA”) has recently issued two new public clarifications to clarify the VAT treatment of (i) the supply of public transportation and transportation services; and (ii) the supply of farm land and buildings.

1. Clarification on supply of ‘Public Transport’ & ‘Transportation Services’

In the Public Clarification VAT P007, the FTA confirms that zero-rating will only be applicable to the supply of buses or trains which are designed or adapted to be used for the mass transport of individuals, without being restricted to a specific category of users. However, zero-rating is not available on the means of transportation used to transport a specific group of people under separate contracts. The clarification provides certain factors that would be indicative of whether a bus or train is designed or adapted for use of public transportation.

Examples of supplies of public transportation that qualify for zero-rating (0%) include:

• buses or trains which are publicly available for use by any person without exception.

Examples of supplies of public transportation that is subject to 5% VAT include:

• school buses;
• buses used to transport groups of employees or workers to or from a place of work; and
• shuttle buses used to transport hotel guests to other locations (e.g. a mall, airport, park, or other tourist attractions).

2. Clarification on supply of ‘Farm Land’ & ‘Farm Buildings’

In the VAT Public Clarification P008, the FTA confirms the VAT treatment of farm land and farm buildings. The key takeaways of this clarification are as follows:

• A farm house occupied by any person as their principal place of residence is treated as a residential building that is exempt from VAT (unless the supply of the farm house constitutes a first supply after construction). A farm house that is used as a weekend home will not be considered as a principal place of residence of a person;
• Farm land which is considered ‘covered’ with buildings or civil engineering works should be subject to VAT at the standard rate;
• Farm land which is considered ‘bare land’ (i.e. the plot has no buildings or civil engineering works) should be exempt from VAT; and
• The rules regarding composite or mixed supplies should be taken into account in determining the VAT treatment of a supply of a farm as a whole.

What should you do next?

Businesses should consider the implications of these clarifications on their transactions to ensure the correct VAT treatment on supply of public transport and farm lands or buildings.

How we can help?

Al Tamimi can assist you to assess the impact of these clarifications, and advise you on the VAT treatment of your affected transactions as well as the recoverability of input VAT.

Please do not hesitate to contact Al Tamimi’s Tax Team if you require any assistance.