Article 44 of Cabinet Decision No. 52 of 2017 on the Executive Regulations  of  the  Federal  Decree-Law No.  8  of  2017  on  Value  Added  Tax  (“Executive Regulations”)   describes   the   definition  of   “bare land” for the purposes of the exemption from VAT set  out  in  Federal  Decree-Law  No.  8  of  2017  on Value  Added  Tax  (“VAT  Law”).  Article  37  of  the Executive  Regulations  describes  the  definition  of “residential building” for the purposes of the zero- rating  (in  respect  of  the  first  supply)  and  the exemption from VAT as set out in the VAT Law. The VAT Real Estate Guide provides some clarity on the   interpretation   of   these   provisions   in   the context of farm houses and farm land. The FTA is aware  of  a  number  of  circumstances  whereby additional  clarity  has  been  sought  on  the  VAT status of farm houses and farm land

It is often necessary to consider each supply on its individual facts where farm land and buildings are concerned.   However,   there   are   a   number   of principles  which  can  be  applied  when  discussing the VAT treatment of supplies (by way  of sale or lease) of both farm land and farm buildings:

Farm houses which meet the conditions to be treated  as  a  residential  building  should  be exempt from VAT (or zero-rated in the case of the first supply after construction).  A building will typically be a residential building where it is occupied by a person as their principal place of residence; Other farm buildings not intended to be used as a principal place of residence will be subject to the standard rate of VAT.  This would include farm houses which are not used by a person as their  principal  place  of  residence,  e.g.  houses used as weekend homes only;

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 work (not  even in-built irrigation etc),  should be exempt from VAT; and

The  supply  of  a  farm  as  a  whole  should  be considered   in   light   of   the   rules   regarding composite    or    mixed    supplies    and    any consideration      apportioned      appropriately where applicable

The  VAT  Real  Estate  Guide  explains  that  where farm houses are located on agricultural land, they will be considered to be residential buildings where they are occupied, or intended to be occupied, as a  person’s  principal  place  of  residence  and  meet the   conditions   to   be   treated   as   a   residential building. In accordance with the Executive Regulations and the   explanation   provided   within   the   VAT   Real Estate guide, a farm house shall not be considered to be a residential building where it is Any  place  that  is  not  a  building  fixed  to  the ground and which can be moved without being damaged;

Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like;

A  serviced  apartment  for  which  services  in addition to the supply of accommodation are provided;

Any building constructed or converted without lawful authority.For example:

Where  a  farm  house  is  used  as  a  weekend home of a family, it is not to be the principal place   of   residence   and   therefore   is   not   a residential building.

Where a part of a farm house is used solely as a principal place of residence of a person, and another  part  of  the  farm  house  is  used  as  a motel, the part of the house which is used as a principal  place  of  residence  may  qualify  as  a residential    building,    provided    the    other conditions are met.

Where  a  farm  house  meets  the  definition  of  a residential building, the first supply of such a farm house  within  3  years  of  its  completion  shall  be zero-rated   for   VAT   purposes.   Any   subsequent supply   (including   both   sale   or   lease)   shall   be exempt from VAT.

Where  buildings are situated  on  agricultural land which do not meet the conditions above, they shall be treated as commercial buildings. For example, a farm house may be used as a non-principal place of residence    of    a    person    (e.g.    only    used    on weekends),   or   a   building   may   be   used   for   a commercial   farm-related   purpose   (e.g.   barns, livestock sheds, granaries, stables etc. As a result of being considered to be commercial buildings, the lease  or  sale  of  such  farm  buildings  should  be subject to VAT at the standard rate.

The VAT treatment of the supply of plots of farm land,  e.g.  fields  etc,  on  which  no  buildings  are situated,  is  dependent  on  whether  the  land  is considered to be “bare land” for the purposes of Article 44 of the Executive Regulations. As a result, it is important that each supply is considered on its own  individual  facts  in  order  to  determine  the correct VAT treatment.

The VAT Real Estate Guide clarifies that farm land will normally be considered to be commercial land, i.e. not “bare” land, as it will normally be covered with   infrastructure   or   civil   engineering   works

required  to  make  it  operational  as  a  farm  e.g irrigation  systems,  roads,  utility  connections  etc.

Farm land which has been developed to this degree would   normally   be   expected   to   be   used   for commercial   purposes   i.e.   the   operation   of   a farming business. As such, the supply of any such commercial farm land would be subject to VAT at the standard rate.

Land  which  is  not  used  for  commercial  farming activities,  but  which  is  used  for  private  farming purposes such as the growing of crops or grazing for livestock, may also qualify as ‘commercial’ farm land  if  it  is  covered  by  completed  or  partially completed buildings or civil engineering works.

Where such farm land is not ‘covered land’ and has merely   been   ‘developed’   or   ‘worked’   for   the purposes    of    growing    crops,    with    no    civil engineering  works  built  into  the  land in  order  to facilitate  that  activity,  then  it  is  likely  the  land should  be  considered  to  be  bare  land.  In  such cases,