VAT on Real Estate – Impact On Residential & Commercial Buildings in Dubai, UAE

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.

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.

Extra VAT will be charged on real estate broker’s  total commission 

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!

Here are the 3 simple step to pay VAT on your commercial properties in UAE

 

2 Replies to “VAT on Real Estate – Impact On Residential & Commercial Buildings in Dubai, UAE”

  1. As a landlord of commercial property, how can collect VAT from a tenant where the contract period starting from 1st Sep’17 to 31st Aug’18

  2. I am accountant in real estate company where I have residential and commercial leases.Input taxes on commercial are recoverable and residential are not.
    my question is that can I claim the common input taxes for the expenses like AC charges, Lift service charges ,etc. when I file return???

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