Impact of VAT on UAE Real Estate Sector

From 1st January 2018, VAT has been levied on the consumption of goods and services in UAE. Businesses, end-users, and individuals are unhappy with the introduction of VAT in UAE. The rough idea has appeared about the VAT framework, sectors, zero-rated goods that will be exempted from the tax. Ultimately, consumers and end- users have incurred all taxes, so they must be aware that devil lies in the details.

Real-estate is one of the sectors which impacts all expatriates and citizens in UAE in the form of house rents and prices, we will tell you how VAT will impact UAE property.

After launched the VAT a survey of all over the real-Estate then find some changes in this time. After six months into its implementation in UEA so the big impact on the real-estate, the all average market prices in the second quarter are affected.

Villa and apartment sales prices retreated by an average 4 per cent over the quarter, while apartment and villa rents were down 3 per cent and 2 per cent respectively, it’s the major impact on real estate.

“I think the immediate impact of VAT was always expected to be limited and it’s proved to be so,” said John Stevens, managing director of Asteco. “We had VAT implemented at 5 per cent here in the UAE, obviously that’s one of the lowest rates in the world.”

According to Khaleejtimes, It is clear that commercial property (sales and leases) will be levied with VAT at the standard rate of 5 per cent whereas residential property will be exempted from the VAT. Exceptions of property in UAE, On the sale of new residential property VAT will charge at zero rate of VAT whereas bare land will be exempted from the VAT.

Senior Manager, tax, Deloitte Middle East, Nurena Tarafder, said that “ Sellers, landlords, and developers of the property must have to pay VAT at the standard rate of 5 per cent while doing property transactions. Additionally, VAT will be charged on the normal selling price or rent, so that developer, landlord, and seller will not suffer a cost [except cash flow] from the introduction of VAT.

From the introduction of VAT, the cost of buying or selling commercial property will increase. Buyer or tenant must register under the VAT and is likely to recollect the VAT charged, [which will be the case the majority of time], the burden of tax on the property must not create an additional cost [except cash flow]”.

Letting or selling all property in UAE including retail outlets will be levied VAT at the standard rate of 5 per cent. However, after the introduction of VAT in UAE will increase the price of commercial property in the transactions of buying or leasing property.

Implementation of VAT totally depends on the seller’s or landlord’s decision to take up the VAT as a cost in their business or passing it to buyer’s or tenants. Later, the buyer or seller is capable of recovering the VAT on their purchase.


The VAT has launched in UAE, and the residential real estate is either exempt or zero-rated is commercial property dealings with 5 percent on top, affecting residential.

what is taxable?

  •  Any type of commercial property in the UAE, whether leased out or sold, such as offices, retail, and even car parking is taxable unless provided as part of a residential property.
  • In other condition, non-resident owners and/or tenants won’t escape the 5 per cent VAT for commercial property. If the landlord and tenant are both non-residents, the landlord has to register for VAT if the property is in the UAE, as there is no one else who could account for that VAT.
  •  Lease incentives, such as free office fit-outs, could be subject to VAT.
  • VAT will also be applicable to rented commercial property, which took effect last year in respect of rents that relate to 2018.
  • If Any property, which is not fixed to the ground and its to hence movable, would also be considered commercial for VAT purposes like Mobile homes.
  • The hotels, bed and breakfast and serviced apartments, also come under VAT.
  • In the views of Trade, “Businesses such as financial institutions and banks are unlikely able to recover VAT fully on the purchase of property, however prices of property (in the case of buying or selling) in UAE increases resulting burden of the VAT, will be a direct cost for them”.

Valuation and prices of commercial property price are likely to increase. The commercial and retail sector is likely to be more expensive by five percent in the case of rental pricing.

Because of residential sales and their lease prices aren’t burdened with VAT, that doesn’t mean The VAT won’t come into play.

For the latest example, Dewa fees and real estate agencies will come under VAT. Sales and leasing are both classified as taxable goods and services. This means that ranter the next electricity and water bill will feature 5 percent on top of the usual amount expected. District cooling and the like of course also fall into this category.

Equally, when seeking help from a real estate agent to buy, rent or manage property, or draw up a sales agreement, then the VAT will be added to those services.that’s expect agency commissions to become steeper.

Real estate agents must be charge VAT on their services if they are registered for VAT, regardless of whether the property is residential or commercial.

The rent prices of commercial property totally depend on the mutual understanding between landlord or tenant whether the tenant wants to pay VAT+ Rent price on the property or not. If in case the tenant is ready to pay rent+ VAT prices on the property, it automatically increases the price of the property.

Rent agreement and sales contracts in the case of existing property, the payment clause will be reassessed to understand whether the landlord/ seller have the capacity to pay/ charge pay VAT that has already been agreed.

On the resale, residential property is likely to be exempted from VAT. This promotes activity in the secondary market. Experts or higher authorities are waiting for the tax implementation in UAE as it will generate more revenue in UAE budget shortage and fund infrastructure projects.

Exempt versus zero-rated property

In tax, commercial property is standard-rated, its mean 5 percent VAT applies to it, while the Residential Property is exempt from the VAT.

Anything that is used by you and designed for living in, such as your own home, nursing homes, student and employee accommodation, would be considered residential and exempt for VAT purposes.

Other is, there is a third category – the zero-rated supply, which is also applied to residential. And The residential real estate within three years from completion would be zero-rated in the UAE, in addition to the first supply of charity-related buildings, and those buildings converted from commercial to residential, as well as UAE nationals building.

Managing director and co-founder of Phidar Advisory, Jesse Downs, says that “However, after the implementation of the VAT, it automatically increases the property prices in UAE. There is a positive impact of this, it can help in albeit marginally, the boom-bust cycles and ease, which can be hugely disruptive.”

VAT on Vacant Commercial Properties

As per the VAT regulations, the supply of Vacant Commercial Properties or the supply of a Commercial Property for future use is subject to VAT at the standard rate of 5 percent.

The tax paid on the lease can be recovered by the tenant on his tax return. The tax paid on the purchase of an entire commercial building can be recovered through the capital asset scheme, only if the property cost is more than Dh5 million.

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