Farm houses satisfy the conditions to be treated as a residential building therefore, qualify as zero rated supply. But, the farm house must be occupied as their principle place of residence. Where one does not satisfy the condition principle place of residence, they will be subjected to standard rate of VAT. Also, farm land covered with buildings or civil engineering works should be subject to VAT at the standard rate. Farm land which is considered ‘bare land’ is exempt from VAT. The supply of a farm as a whole should be considered as composite or mixed supplies.
As per Executive Regulations a farm house is not considered as a residential building, when:
- Any place that is not a building fixed to the ground and which can be moved without being damaged;
- Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like;
- A serviced apartment for which services in addition to the supply of accommodation are provided;
- Any building constructed or converted without lawful authority.
Where buildings are situated on agricultural land which does not meet the conditions above, they shall be treated as commercial buildings. Hence, subject to standard rate of VAT.
However, it is to be noted Where a farm house meets the definition of a residential building, the first supply of such a farm house within 3 years of its completion shall be zero-rated for VAT purposes. Any subsequent supply shall be exempt from VAT.
The VAT treatment of a supply of a farm as a whole, comprising both commercial land, commercial buildings and residential buildings, should be considered on the basis of whether it is a single composite supply (and therefore subject to the VAT liability of the principal component), or whether it is a mixed supply (and therefore the individual components are subject to different VAT treatments). Where a supplier is making a single composite supply of a farm the VAT liability should be apportioned.