VAT: What UAE Property Buyers and Renters Need to Know Now

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VAT on UAE Property
Photo-Daniel Cheong (used with permission)
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As the United Arab Emirates (UAE) is gearing up for the rollout of the first-ever tax in the country, here are the implications for the real estate sector

  • Real estate brokering is defined as a service under the new UAE tax law, which will take effect 1 January 2018.
  • This means that UAE residents renting or buying property in the UAE will pay an additional 5% to the UAE government, collected by their broker, on the total commission of a rent or sale.

Do you owe the UAE government money? Here, in the year 2017, the answer is likely “no”. But in 2018, VAT will be the law of the land and it is important that residents not be caught off guard with the new regulations.

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Propertyfinder Group is gearing up for the rollout of the first-ever tax in the UAE, and wants to ensure it is a smooth transition for anyone who calls this country home.

“The biggest confusion we are seeing in the market is the mixing up of a real estate transaction (rent or sale) with the service of a real estate broker, whereby for a commercial building both will incur a 5% VAT and for a residential building the first one will not incur any VAT as opposed to the second one (5%). As such, VAT should not have any major slowing down effect on a buyer-friendly real estate climate and should have a minimal impact on any of our residential rents,” says Simon Comina, Chief Financial Officer at Propertyfinder Group.

RELATED: VAT, a new way of life for the UAE

For owners of residential properties, either homeowners or investors of residential buildings, there is no need to register for VAT as long as they do not have any other business activities. The first supply of a new residence that is upon first handover by a developer is zero-rated within the first three years after its construction. Subsequent sale or rental of such property is exempt of VAT whenever such transaction occurs.

RELATED: UAE Tax Authority issue Guidelines for Smooth VAT Rollout

Owners of commercial property, however, will have to register with the Federal Tax Authority (FTA) if the value of supply (the lease and/or sale) over the preceding 12 months or the coming 30 days exceeds Dh375,000. The VAT rate for such sale and rent of a commercial property is 5%. However, such owner, by registering with the FTA, will generally also be able to recover VAT with respect to expenses related to the supply of the building.

UAE Real Estate VAT Rates

UAE Property VAT Rates
UAE Real Estate VAT Rates. Image-Propertyfinder.ae
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