Real Estate
December 03, 2022

VAT on Real Estate Services in The UAE

VAT on Real Estate Services in The UAE
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All landlords and real estate professionals should know about UAE VAT legislation regarding commercial and residential real estate properties. 

That year 2018, the UAE implemented Value Added Tax (VAT). This has significant influence on several areas of the economy. Another of these is the estate industry. VAT is charged on some products and services, including real estate transactions in the country, including Dubai. 

The FTA is the government agency in charge of all tax activities in the UAE. The majority of FTA services are available electronically via the website:  www.tax.gov.ae. 

What exactly are real-estate-related services? 

The real estate business is a critical pillar of the UAE's economic diversification. 

FTA considers commercial buildings to be all properties other than bare land, those built for residential purposes, and those built for charitable purposes. 

Don't worry, here's the good news: some real estate transactions are exempt from VAT, while others are subject to a 0% or 5% tax rate. This means that you may be required to register in some situations but not in others!

A five percent VAT is a low rate in comparison to other countries' value-added tax rates. Hence, VAT introduction, in particular, for property transactions that occur in Dubai, is unlikely to make a difference in the interests of buyers.

Rates of VAT in the Real Estate Sector 

The VAT Law charges real estate supplies because residential homes and bare land are free from VAT. 

Commercial property is subject to the regular VAT rate of 5%.

 

UAE VAT and Residential Real Estate 

The resale house market is VAT-free at the moment of sale. 

Buyers must pay taxes on government fees and commissions linked to purchases. 

Only lease management services and other property management services will be subject to value-added tax on real estate in Dubai. 

UAE VAT on Commercial Property 

According to the FTA, every structure is considered commercial property; if it is not- 

  1. Used for a philanthropic purpose 
  2. Bare land built for residential purposes 
  3. Buyers of commercial property in the UAE must pay VAT on both secondary and off-plan market units. Commercial buildings bought for the purpose of leasing to enterprises or commercial tenants are subject to VAT, although owners are exempt.

VAT ON RESIDENTIAL PROPERTY

What exactly is a residential property? Residential properties are defined by the FTA as "any building that is meant for human occupancy." 

The following entities are included in the FTA's definition of residential premises for VAT purposes: 

  1. Building inhabited or to be occupied as a dwelling by a person 
  2. Buildings used to house students in residence 
  3. Orphanages 
  4. Rest homes and nursing homes 
  5. Farmhouses on agricultural property 
  6. For VAT reasons, a tiny piece of the building utilized as an office or workspace will also be deemed a residential structure. 

 

The First Supply of the Building( Residential)

Residential structures' initial supply is zero-rated for VAT purposes. This means that if the building's first sale or lease occurs within three years of its construction, the FTA will classify it as zero-rated. The VAT paid on the expenditures related to the initial delivery of a housing development is fully recoverable. The structure's future supply is free from VAT.

VAT on bare land

Bare land means ‘a vacant land’. The FTA has exempted the supply of bare land from VAT. 

But, such bare land must not be covered by:

Do Homeowners have to register for VAT? 

There is currently no necessity for household real estate owners within the UAE to file for VAT. Private persons in Dubai, like those in other nations, are not liable to tax if they are company owners or self-employed and generate taxable income.