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VAT implementation on Dubai Real Estate

17/11
Dubai news /
What you should know about VAT on real estate:

January 1,2018  VAT will be a reality in the UAE. The long-awaited UAE VAT legislation, namely Federal Decree Law (8) of 2017 (the VAT Law) is finally published and everyone can at last be properly informed about the impact of VAT on their everyday lives, as well as all the various industry sectors that will be affected thereby.

Here is how VAT will impact the real estate industry and, more specifically, lease agreements and property purchases.

VAT will be payable at the standard rate of 5 per cent on all commercial properties, both for rental and purchase:

This means that with effect from January 1, VAT will be payable by commercial  tenants and purchasers.

 

Contracts should clearly state whether the price is inclusive or exclusive of a value added tax:

If the contract does not state that the price of rent is exclusive of VAT, the landlord will have to bear the cost of the added five per cent, “If the contract says the price is exclusive of VAT, then the tenant must pay. If the contract states that the price is inclusive of VAT, then landlord must bear it. If the contract is silent, then again the landlord has to pay,” A silent contract means that it makes no mention of VAT.

 

The VAT Law differentiates between the lease of residential and commercial properties and also distinguishes between the supply of residential properties by a developer to a “first time” tenant or purchaser and the supply from a “first time” purchaser (or subsequent purchasers) to either tenants or purchasers thereafter:

The ‘first time’ supply of residential properties (by developers) within three years of completion, for both rental or purchase, will be zero-rated, while subsequent residential leases from a ‘first time’ purchaser will be exempt from VAT. The tax will, however, be payable at the standard rate on all commercial properties, both for rental and purchase. Don’t look past the fact that the associated costs relating to properties will attract VAT. These will include service charges, cleaning services and utility charges, and accordingly the associated costs of renting or owning a property will increase. This should be budgeted for in assessing the affordability of property transactions, whether for renting or for owning.

 

To Summarize:

 

  • Bare, or unimproved land will be exempted from VAT
  • First time supply of residential properties by developers within three years of completion, for both rental or purchase will be zero rated
  • First time residential property renters will not pay VAT on the lease amount
  • First time residential property purchasers will not pay VAT on the purchase price
  • VAT will be payable at the standard rate of 5% on all commercial properties, both for rental and purchase, with variations for different scenarios
  • Service charges, cleaning services and utility charges will attract the standard VAT 5% rate

 

 

The information contained in this article is for general guidance only. While author has taken utmost efforts to ensure the accuracy of the written content, the author or the company cannot be held responsible for errors or omissions, or for the results obtained from the use of this information. Therefore, we strongly recommend that it should not be used as a substitute for consultation with Federal Tax Authority (FTA), professional accounting, tax, legal, or other competent advisers.
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