Commercial VAT

Commercial VAT is the 15% value added tax charged on leases of non-residential property, such as shops, offices, warehouses, land and showrooms, and on hotel stays and serviced apartments, whenever the landlord is registered, or required to register, for VAT; the landlord charges it to the tenant and pays it to ZATCA. In substance it is the landlord's output VAT borne by the tenant, and a registered tenant can deduct it as input VAT if it uses the property for a taxable activity. The tax rests on a clear contrast in the VAT Implementing Regulations: leasing residential property is exempt, while leasing non-residential property is standard-rated. A landlord charges VAT only if registered; an individual or business whose taxable supplies do not exceed SAR 375,000 a year and that has not registered voluntarily adds no VAT to the rent, and issuing a tax invoice without registration is a violation. In mixed-use buildings, rent is split between the exempt residential part and the taxable commercial part. VAT falls due on the earliest of the instalment due date, the payment date and the invoice date, unless the landlord has been approved for the cash accounting basis. In practice, commercial leases are documented on the Ejar platform supervised by the Real Estate General Authority (REGA), with documentation fees of SAR 200 for the first year and SAR 400 for each additional year, which are separate from the VAT due on the rent itself. The lease should state expressly whether the agreed rent is inclusive or exclusive of VAT and show the registered landlord's VAT number, to avoid disputes at renewal or if the landlord registers during the lease term.