VAT ‘could impact cash flows for GCC construction firms’

Date: 30 Mar 2017

Proposed new law will not subject sale of new real estate units to taxation – report.

Although the sale of new real estate units in the UAE will not be subjected to value-added tax (VAT) when it is implemented, it could impact cash flows and credit agreements for some construction firms, a leading tax expert has said.

A 5% VAT is expected to be introduced simultaneously across the GCC from January 1, 2018, Younis Al Khouri, under-secretary at the UAE’s finance ministry, had previously said. Earlier this month, the finance ministry had held its first workshop to educate UAE businesses about the new proposed tax law.

Gurdeep Randhay, head of tax at Grant Thompson, an international accountancy firm, was present at the workshop and told Zawya Projects that the ministry had indicated that the first sale of a residential property unit would be subject to a VAT rate of zero percent, while subsequent sales would likely be exempt.

“For new construction, it is quite clear there will be no burden on the developer because the first sale of residential property is zero-rated,” Randhay said, adding that a zero rating on the first sale of a residential property would mean that all input tax the developer incurs on purchases, including construction, are recoverable.

But Randhay warned that contractors and construction firms would need to factor in the potential negative impact of VAT on their cash flow.

“For contractors and (some) construction firms, VAT will impact cash flow because VAT is payable within 30 days of the end of the quarter, during the filing,” he is reported as saying. He added that businesses would need to factor in the cost of long-dated payment terms on cash flow and the cost of funding the VAT.



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