VAT ON PROPERTY 2008
A new VAT on property regime will take effect from 1 July 2008. The VAT treatment of residential property will remain relatively unchanged. The new VAT system will impact most significantly on commercial property transactions. The most important changes to note are as follows:

• Sales of Commercial Property  

The VAT treatment of the sale of property will no longer be based on whether the property has been developed since 1972.Under the revised VAT system, VAT will apply only to the sale of “new” properties. A property will be considered “new” for a period of up to 5 years after completion. An existing building that is substantially refurbished or adapted for materially altered purposes will also be considered “new”. Subsequent sales within 5 years of completion will also be taxable where the property has been occupied for less than 2 years. The sale of “old” properties will be exempt from VAT, although the vendor and the purchaser can elect to have VAT (13.5%) chargeable on the transaction.

• Leases of Commercial Property

The new VAT scheme will abolish the artificial treatment of long leases as supplies of goods. All leases of property (with the exception of leases deemed to be a “freehold equivalent”), will be exempt from VAT. There will be an option to tax the rents (21%) arising under the lease. This option will only be exercisable where the landlord and the tenant are not “connected persons”. This enables the landlord to continue to reclaim VAT incurred on acquisition or developments costs.

• Introduction of a Capital Goods Scheme (“CGS”)

This requires tax payers to monitor their taxable use of a property over a 20 year period and make adjustments to VAT recovered initially on the acquisition of the property to reflect any changes in the taxable use of the property. This will place a significant record keeping onus on all property owners.