Taxes and fees on off-plan purchases

The taxes and fees affect the costs involved in buying a property off-plan. These costs can vary based on the country and type of property. VAT or Sales Tax: All sales are subject to VAT or Sales Tax. Transfer Tax: Transfer taxes are usually triggered once the transfer of ownership happens. Transfer taxes in sales involving property purchased off-plan: VAT is triggered either during the sale or upon completion, while Transfer taxes will be triggered once the transfer happens. This guide aims to provide step-by-step, no-nonsense advice for flagging probable taxes, cash flow, and the right questions for you to ask before closing any deal. I will provide examples showing the typical rates and how they apply, but it is always wise to refer to what applies locally.

VAT and off-plan sales: what to expect

The VAT regime applicable to off-plan purchases depends on whether the property will be used for residential or business purposes. In various countries, standard rates are applicable to new business properties and certain off-plan purchases, while residential purchases are zero-rated or exempt. For example, according to the UAE tax authority, the standard rate of 5% VAT is applicable to the following: the supply of commercial properties; and certain off-plan commercial properties, which are paid using the tax portal as miscellaneous payment when due. In these situations, either the buyer or the seller will have to charge and declare the VAT when the purchase takes place, and it is important to request the following from the seller: confirmation whether the property attracts VAT; and the VAT invoice or tax number, which will then allow the business, if it has the obligatory VAT number, to claim the VAT amount.

Stamp duty and transfer taxes at completion

Stamp duty, or transfer tax, applies at the point when ownership changes. Exact arrangements and rates vary considerably. For example, in England and Northern Ireland, buyers face Stamp Duty Land Tax, or SDLT, if a property price exceeds HMRC thresholds-the rules and limits move from time to time, and you should check the most up-to-date advice on gov.uk. In Dubai, a fixed fee is generally payable upon completion of a transfer and is often a percentage of the sale price; you will find many guides and official sources referring to a 4% DLD transfer fee for registered transfers. Off-plan, the system seems to be that some locations charge part of the duty at the time of booking or on associated transactions, so you must check whether your transaction will be treated as one related transaction or as discrete events.

Registration and specific off-plan charges

When purchasing off-plan property, the costs for the additional registry formalities are higher, with small fixed charges. Consider the case of Dubai—a developer must record an off-plan agreement on Oqood or an equivalent registry, and you must pay fixed fees for the registration of the booking. The whole transfer fee, which runs around 4%, will arise at the point of handover when the transfer actually occurs. In other regions, there may be stamp duty on an agreement or possibly small fees for the initial booking registry. It is best to retain all receipts for the registrations and obtain the registry number from the developer or attorney. When you need the number for the handover or transfer, or the subsequent title deed or mortgage registry, you'll be glad you made that small investment.

Who normally pays, and when (buyer vs seller)

The payment of taxes and fees varies both by market and contract. Certain patterns recur:

·      Value Added Tax (VAT): Normally, it is charged by the seller/developer and is paid to the tax department by the seller/developer. In some cases, VAT is also to be accounted for by the buyer.

·      Transfer or stamp duty: Normally to be borne by the buyer, although it may be different according to the contract. This depends on the contract, tradition, or negotiation.

Timing is important as some taxes are to be paid upon the signing of the contract, while others are to be paid upon the transfer of the contract through the legal process. To avoid any issues, you can ensure that the sale and purchase contract mentions the payment responsibilities of the different taxes that have to be paid, along with the respective transfer dates, and also that the different taxes are factored into the price that is advertised. The different payments that are to be made must be documented meticulously.

How to plan and reduce surprise costs (negotiation & planning tips)

Budget your taxes and fees before they occur. Below are simple tips on how to avoid unplanned expenses:

·      Obtain a written tax breakdown from the developer before signing any agreement.

·      Find out if VAT fees and transfer fees are included in the price advertised or will be separate.

·      For businesses, check if the VAT is reclaimable and retain the VAT invoices.

Whenever you can, it is worth negotiating: some purchasers will opt for a “price inclusive” deal, where it is agreed whose responsibility it is to pay VAT, and whose it is to pay transfer fees, for example, so it could be worth involving an accountant or tax professional to examine whether any allowances may apply or what TAS rules, such as connected transactions for stamp duty, may affect the overall bill.

Quick comparison table

Conclusion

Off-plan purchase taxes and fees aren't add-ons—you’ll see them affect your spending from the point you book through to the point of handover. VAT depends on the nature of the property and the VAT regulations operating in the area you are in, so make sure you confirm if the purchase is taxable and if VAT is included in the cost you are purchasing. Transfer costs and fees are generally in line with the transfer of ownership and are usually the buyer's responsibility; however, agreements and local practice can vary. Insist on a breakdown agreement on taxes in writing and keep all receipts for invoices and registry documents. Budget for small add-ons in contingency costs. In major purchases, take the services of a local tax specialist or property attorney to confirm deductions and whether any amount can be reclaimed.

FAQ

Q1: Do I have to pay VAT in respect of an off-plan property all the time?

Not always. This depends on the VAT regulations in the area and the classification of the unit as a residential or commercial one. You should approach the developer and ask them for a VAT invoice or tax determination if you would like to recover VAT.

Q2: Normally, who usually pays the transfer fee upon completion?

Sometimes the purchasing party will bear the cost of transfer or stamp duties at handover. However, this obligation may also be allocated in accordance with the SPA.

Question 3: Are the off-plan sale registration fees refundable when the sale does not go through?

This depends upon the agreement or rules in the locality. Certain fees for registries are non-refundable, while these can be returned in case the project is canceled by the developer.

Q4: Can I cut VAT or stamp duty on an off-plan purchase?

In some instances, you can. Reliefs, treatment for linked transactions, or a business VAT recovery may help chop off a corner from the overall bill. Take professional advice from tax experts for verification on applicable reliefs and arrangements for reducing tax liabilities.

Q5: What documents will I need in order to prove payment of taxes?

It is always best to keep the following receipts: VAT receipts, receipts for the receipt of the registry (Oqood, or the receipts for the deed), receipts for the fees of the transfer, and any escrow statement.