Is commercial real estate subject to VAT in Dubai?

Is commercial real estate subject to VAT in Dubai?

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Yes, all commercial properties are subject to VAT in Dubai as well as all over the UAE. The Federal Tax Authority (FTA) and the Dubai Land Department (DLD) are in agreement to charge 5% VAT on commercial properties and related real estate services.

As per the authorities, any sale or purchase of a vacant commercial property or the off-plan sale of commercial properties – which could be under the building license is subject to 5% VAT.

Nevertheless, the value-added-tax paid during the lease period can be recovered by the tenant, if they are taxable and are registered as well as entitled to a tax refund. Value-added-tax paid towards the purchase of an entire building may be refunded depending on the capital asset scheme. For example, if the cost of the property exceeds Dh5 million.

Also, real estate services related to such commercial properties are also subjected to VAT in Dubai, UAE. VAT is also applied to management fees, brokerage and other real estate consultancy charges are subject to 5 % VAT. These charges are levied and taxed on the value of the service provided at the given location of the property and according to the normal taxation standards.

Is VAT applicable on residential properties as well?

No, VAT in Dubai as well as in any other Emirates is not applicable on residential buildings and residential properties such as villas, accommodation for armed forces, elderly homes, nursing homes, etc. Residential buildings are not taxable if sold or rented, but this law is not applied to buildings not fixed on lands, buildings offering services in addition to housing, hotels and hotel apartments, etc. Also, real estate transactions related to residential buildings are zero-rate.

Residential properties constructed recently by developers or business entities are eligible for a tax refund if the supply is made within three years after the completion certificate.

However, residential property leased out on a short-term basis to non-residents falls under the commercial category. If a lease is less than six months and the person living there doesn’t have an Emirates ID, it would be deemed commercial from a VAT perspective.

So, is there VAT applicable if you buy a commercial building and convert it into a residential building?

If you purchase or even rent a commercial property and convert it into a residential building, you are entitled to get a refund on the tax paid within a period of three years from the date of transfer.

However, for mixed-use buildings – the residential area will be zero rate or exemption from tax; whereas the commercial area will be subjected to VAT in Dubai, UAE. The area will be converted into a percentage of VAT allotment.

Will a real estate or property owner require tax registration in Dubai, UAE?

No, property owners of the residential real estate do not have to register for VAT in Dubai or elsewhere in the UAE, if they do not have any other business. In case, if residential property owners have other commercial businesses, then they should consider registering VAT in Dubai, UAE.

On the other hand, the owners of commercial properties must register for VAT in Dubai or any other Emirates if they exceed the threshold of supplies for the commercial property. If the value of supplies exceeds the threshold of 375,000 AED in a year – then VAT registration becomes mandatory.

Is VAT also applicable on rented properties?

VAT is not applicable on residential rented properties, however, rented commercial properties are subjected to 5% VAT in Dubai as well as across the UAE.

Still, have doubts with regards to VAT on a property and real estate in the UAE? Contact SHURAA TAX CONSULTANTS for any further queries or book yourself a free appointment with one of our tax consultants in Dubai. To know more call, us at +971508912062 or email us at info@shuraatax.com

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