Construction services can be broadly defined to include a wide range of building and construction services that are performed at businesses. They include services such as site preparation, foundation work, scaffolding, bricklaying, roofing, renovation, and repairs.
The key players in the construction industry are:
He acquires land and engages contractors to construct building or structure on the land.
- Main Contractor:
He is engaged by the developer to carry out the construction and he takes full responsibility for the completion of the construction project.
He is engaged by the main contractor to perform part of the main contractor’s work. Sub-contractors include specialists such as plumbers, electricians, painters, and bricklayers.
Construction services performed in UAE are liable to the VAT, except certain exempt services discussed later. However, construction service provided outside UAE is an export of service hence it will be a zero-rated service.
Construction of commercial property is liable to VAT at the standard rate i.e. 5%. However, construction of residential buildings and charity related buildings is zero rated. It means, in the case of residential and charity related buildings the VAT already paid on building materials can be claimed back without paying any further tax on the building. On the other hand, in the case of commercial buildings, VAT is to be paid on the construction of building @ 5%and can claim input tax while paying such output tax.
In the construction industry, there are developers, main contractors, and sub-contractors. It is possible that the sub-contractor may not be registered for tax due to turnover not reaching the threshold limit for mandatory registration. In that case, it is advisable that such small contractors should get voluntarily registered if they are reaching the voluntary registration threshold limit.