VAT in Dubai: 85 per cent of property deals not subject to the new VAT

27.03.2018

Since January 1, 2018, VAT was introduced in Dubai. But this had a slightest effect on the real estate market, as almost all components are exempted from this tax or taxed at a zero rate. Read more on why even some commercial units are not subject to VAT.

The Federal Tax Administration (FTA) and Dubai Land Department (DLD) confirmed that the value-added tax (VAT) introduction in the UAE since 2018, had little impact on the UAE property market, since most transactions are either exempt from a 5 per cent VAT (of the transaction value) or taxed at a zero rate.

At present, only commercial real estate deals are taxed, and residential property transactions are exempt from VAT. For additional information on what’s the difference between zero rate and exemption see our detailed article about the practice of introducing VAT in the UAE.

However, not even all commercial real estate deals are taxed. Leased commercial real estate will not be considered as a supply during its sale by the taxable person, therefore, it will not be taxable, the FTA recently clarified.

Sultan Butti bin Mejren, DLD Director General, concluded that 85 per cent of all real estate transactions in Dubai are therefore not subject to VAT. The tax will be only applied to the vacant commercial properties sales and leases.

Bin Mejren emphasized that this clarification would greatly ease the VAT burden on buyers purchasing shops, offices and warehouses, which today often require sellers to reduce prices, because buyers have to cover extra VAT expenses.

Commercial real estate accounts for 31 per cent of all Dubai property lease transactions, which in cash amounts to AED 21 billion out of AED 66 billion total transactions cost for real estate leases. As for facility management services of commercial buildings VAT, they can be deducted by the owners on their VAT returns.

FTA Director General Khalid Ali Al Bustani emphasized that property owners renting out their residential units are not required to register with FTA, if all supplies made by the owner are exempt from tax.

Al-Bustani also noted that the VAT regulation provides for several mechanisms to maintain the constant competitiveness of the real estate sector. For example, the law provides that the first sale of newly built residential facilities is exempted from VAT during three years after completion. For other aspects of real estate taxation in Dubai and the UAE and its impact on the sales market performance, read our article "Do real estate developers in Dubai intend to charge buyers extra price?".

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