A company holds Licensed Real Estate Developer status granted by ZATCA. It incurs input VAT on construction and development costs for residential units, which it then sells to buyers under sales that fall outside the standard VAT system because those sales are instead subject to RETT. Under the Licensed Real Estate Developer Scheme, what happens to the input VAT the company incurred on those development costs?
- The company may apply to ZATCA to recover that input VAT, even though its output sales of the developed units are subject to RETT rather than VAT
- The input VAT is permanently unrecoverable, because as a general rule a business can only recover input VAT against output supplies that are themselves subject to VAT
- The input VAT automatically converts into a corresponding credit against the 5% RETT otherwise due on the sale of the developed units
- The input VAT can only be recovered by the eventual buyer of the residential unit, who claims it as a deduction against their own personal income tax
Why A? And why not the others?
Correct answer: A. The company may apply to ZATCA to recover that input VAT, even though its output sales of the developed units are subject to RETT rather than VAT
The Licensed Real Estate Developer Scheme is a specific exception to the ordinary input VAT recovery rule, created precisely because RETT's replacement of VAT on real estate sales would otherwise leave developers unable to recover any input VAT on their construction and development costs, embedding an irrecoverable VAT cost permanently into new housing supply. Under the Scheme, a company holding Licensed Real Estate Developer status may apply to ZATCA to recover that input VAT despite its output sales falling under RETT rather than VAT. The option describing the input VAT as permanently unrecoverable states the general rule correctly but misses that the Scheme exists specifically to override that general rule for licensed developers. The option describing an automatic conversion into a RETT credit invents a mechanism that does not exist; the relief is a VAT recovery claim to ZATCA, not an offset against the buyer's RETT liability. The option shifting recovery to the eventual buyer's personal income tax return has no basis in the Scheme, which is a VAT relief for the developer incurring the cost, not a benefit passed to the purchaser's own tax return.
Source: ZATCA Licensed Real Estate Developer Scheme, input VAT recovery on development costs