It aims to clarify the VAT treatment of the sale of a building and the subsequent use thereof by the purchaser.
Accordingly, depending upon the nature of the building and the permitted use thereof at the date of supply, the supply of a building may be standard-rated, zero-rated, or exempted from VAT.
The supply of a building constitutes the supply of a single indivisible good at the date of supply. Since VAT is a tax based on transactions, the VAT treatment shall be determined independently at each date of supply. If the purchaser changes the permitted use of the building, it does not impact on the VAT treatment of the preceding sale.
If the building was sold as a hotel apartment and the buyer changes the permitted use of the building to residential use only, the supplier would charge VAT at 5% on him, and the buyer should not account for VAT on the subsequent exempt supply of a residential building.
If the building was sold as a residential building and the buyer subsequently changes the permitted use of the building to a hotel apartment, then it does not affect the original transaction. The original transaction would be exempt from VAT except if it was the first supply of the building chargeable at zero-rated tax.
If, in the future, such a hotel apartment is sold, then the purchaser will have to account for 5% VAT to a third party if the purchaser is a taxable person.
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