VAT Rules on Real Estate in Dubai 2018

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Starting January 2018, the whole United Arab Emirates (UAE) is implementing value added tax (VAT) of five percent. With businesses now required to register in the website of the Federal Tax Authority (FTA), among the industries to be impacted by the new policy is real estate in Dubai. Here are some the VAT rules on real estate in Dubai that you need to know before buying your next property.

VAT rules on selling of residential and commercial properties

For residential properties, the initial sale of its projects be exempted from some jurisdictions. A residential building, which is defined as a building intended for private occupancy as a main place of residence, will be free from any charges on the first three years.

Residential properties in Dubai does not include:

  • Any establishment that is not a ‘building fixed to the ground’ and can be moved without being damaged.
  • Any property that is used as a hotel, motel, bed and breakfast establishment or hospital or anything similar.
  • A serviced apartment where its services are in addition to the supply of accommodation are provided.
  • Any building constructed or converted without lawful authority

However, for commercial properties in Dubai and in the whole UAE, the VAT will be implemented. Examples of commercial buildings include hotels, shops, warehouses and etc.

For a mixed-use building (both residential and commercial) the rent or sale of the residential units will be VAT exempted, depending if it is an initial supply or a subsequent supply. The commercial units, however will be subject to the 5% VAT. As for the tax acquired by the owner on its building needs, it should be apportioned where there is an exempt supply. The only portion that can be recovered is the portion related to taxable supply (which is at 0 to 5%).

VAT rules on property rentals

Residential properties for rent will be exempted from VAT implementation. The rent of commercial buildings will, however be subject to 5% VAT.

VAT rules on property developers

For property developers, VAT rules on real estate in Dubai will be different depending on the property for sale, whether it is commercial, undeveloped property or residential property. Residential properties and bare plots or land are exempted from VAT regardless of its use. As same VAT rules on real estate in Dubai apply, commercial properties are subject to 5% VAT.

Real estate owners’ VAT registration

Owners of residential real estate projects in Dubai need not to register for VAT if they are not involved in other business activities. However, if they own a commercial building, the owner should register the value of all the building’s supplies over the past 12 months to determine if it exceeds AED 375,000 or if it is projected to exceed AED 375,000 in the coming 30 days.

Reclaiming VAT

An owner of residential building will not be able to recover VAT in respect of expenses related to the exempt supply of the residential buildings. An owner of a commercial building will generally be able to recover VAT in respect of expenses related to the supply of the building.

Find VAT-free residential properties in Dubai

Knowing the VAT rules on real estate in Dubai makes you ready for your next property investment! Find the best VAT-exempted residential properties in Dubai complete with price, payment plan, floor plan, brochures, video and other important information you need. Browse through our complete property listings and find the best one that suits your preferences and budget.

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