VAT in real estate sector will be applicable only for commercial properties. All commercial property transactions, sales, and leases alike will be subject to 5% VAT. Residential properties are exempt by law for the time being to offset additional amount to the irrecoverable cost paid by the buyers upon acquiring a new property.Real estate developers will be zero-rated for a period of three years of residential property construction. It will allow securing the market on the residential side. Zero-rated goods and services are VAT taxable but the actual tax charges are zero.

The VAT on real estate will depend on whether it is a commercial or residential property. Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e. 5%). On the other hand, supplies of residential properties will generally be exempted from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. To ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.