The UAE Ministry of Finance, the UAE Federal, and Emirate governments provide many different public services, citizens, and residents. The commercial real estate is charged at a standard rate of 5%.
We are expecting that businesses will be able to recover the VAT paid their VAT returns and the Government of UAE already provide online VAT Registrations for the VAT eligible businesses on the FTA website its required for all real-estate Business. Among the industries that will be affected by VAT, the real estate sector is the major one.
In this article, we will try to understand the impacts of the new tax system in this industry.
Table of Contents
- Real Estate Definitions for VAT
- Download VAT Treatment of Properties
- 5% VAT on The Commercial Lease in UAE
- VAT on Real Estate
- VAT Registration for Real Estate Owners
- How to pay VAT Commercial Properties in UAE?
Real Estate Definitions for VAT
Supply: Any sale, lease or transfer of rights of any property will be considered a real estate supply for the purpose of the tax.
Download VAT Treatment of Properties
Residential building: Any building or a part of a building that is intended to be used by individuals as a place of residence. A building cannot be considered residential in any of the following cases:
- Any place or building that is not fixed to the ground or can be moved without damaging it.
- Any building being used as a hotel, hostel, hospital, motel, bed, and breakfast or any related service.
- A building that is constructed without permission or proper authority.
- Service apartments where services are also provided, in addition to accommodation.
Commercial building: Any building or a part of it which is not being used as a residential property is a commercial building. Hotels and shops are examples of it.
“The mostly people in a growing market would probably try to complete whatever cost they would have to pay. but we are not in that type of this marketplace. so if the landlord of the Property seller was looking to complete that cost and increase the prices, he would then not be in a competitive situation.” – Mario Volpi
Also, Check Out How Much VAT Can Make impact on Dubai Real Estate Investors
5% VAT on The Commercial Lease in UAE
The VAT in UAE has been launched after which the first phase was started as registering on the website of the Federal Tax Authority (FTA) by the businesses in UAE.
The recently launched VAT is also applicable for commercial purposes for renting the office space. While the commercial leasing does fall under the category of taxable revenue as confirmed by the Federal Tax Authority. Therefore, the VAT will be applied to the property leased for commercial or residential purposes, irrespective of all other types of commercial activity.
VAT on Real Estate
The current UAE Real-estate market scenario is marked by challenges and opportunities. The market situation to be tough due to the ongoing political climate in the region, ample supply, and soft prices.
VAT on residential properties
The first supply/sale of a newly constructed residential building will be treated as a zero-rated supply for VAT, given that the property is sold within three years of its construction. However, the subsequent supplies of the same property shall be exempt from tax.
VAT on commercial buildings
The tax will be applicable at the standard VAT rate of 5% on the supply of all commercial properties such as offices, hotels, retail, etc.
There is no tax on the rental of residential properties, however, the rent/sale of a commercial building is subject to 5% VAT.
The VAT on mixed-use buildings (residential and commercial)
The supply of a residential part of a building shall be zero-rated (the first supply) or exempt. The supply of a commercial part of a building shall be subject to 5% VAT.
That means the sale/rent of a mixed-use property should be treated accordingly. The tax paid on the taxable portion may be recovered.
VAT Registration for Real Estate Owners
The owners of residential properties are not required to register for VAT unless they have any other taxable business activities.
However, the owner of a commercial property (or a residential property being used for commercial purposes) will have to register for tax if the supplied value over the past 12 months is more than the VAT threshold of Dh 375,000 or is expected to reach this limit over the period of next 30 days.
Recovery of the tax paid on a real estate property
The value-added tax also has the mechanism of tax refund in specific cases.
The VAT paid by the owner of a residential building in respect of expense related to tax-exempt supplies of the building will not be recoverable or cannot be charged from the customers. The owner of a commercial building can recover the VAT paid in respect of the supplies.
How to pay VAT Commercial Properties in UAE?
Now you may be thinking about how to pay VAT on your commercial properties in UAE?
well, it’s quite easy!