The Federal Tax Authority has issued a public VAT clarification concerning Dubai Owners’ Associations.
The clarification addresses the impact of Law No. 6 Concerning Ownership of Jointly Owned Property in the Emirate of Dubai (“Law No. 6”). It confirms that ‘Managing Entities’ that are set up under Law No. 6, take over all of the rights and obligations of Owners’ Associations, including any obligations under the VAT legislation.
Owners’ Associations are established to manage properties in multiple ownership, such as apartment buildings. The Owners’ Association engages with third party suppliers and recharges each owner an appropriate share of the cost. This recharge is a supply for VAT purposes and gives rise to an obligation to register for VAT.
Under Law No. 6, which became effective on 4 November 2019, all rights and obligations of Dubai Owners’ Associations had to be transferred to Management Entities. From that date, the Management Entities became the party liable to deal with any VAT due on the supplies made to property owners. At the same time, the Owners’ Associations ceased to be liable, or entitled, to be VAT registered.
According to article 21 of the VAT Decree Law, a person that is registered for VAT is obliged to apply for deregistration within 20 days of ceasing to make taxable supplies. On this basis, the Dubai Owners’ Associations should have applied for deregistration by 4 December 2019. By the same token, the Managing Entities would have become liable to register for VAT, subject to the provisions regarding registration, set out in the Decree Law.
Any Owners’ Association that did not apply for deregistration, and any Managing Entity that did not apply for VAT registration, within the specified time limits, will be liable to penalties.
It should be noted that Law No. 6 only applies to properties in the Emirate of Dubai.
Action required
As a matter of urgency, Owners’ Associations and Managing Entities that manage properties in the Emirate of Dubai should review their VAT position in the light of the guidance in the clarification. If registration or deregistration deadlines were missed, corrective action should be taken, and any errors in VAT declarations should be disclosed to the FTA according to the voluntary disclosure rules. In cases of uncertainty, professional advice or clarification from the FTA is recommended.
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