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The Federal Tax Authority (FTA) and Dubai Land Department (DLD) have confirmed that the UAE's recently introduced value-added tax (VAT) will have a limited impact on the real estate sector.
In a statement on Tuesday, FTA and DLD said all real estate transactions, with the exception of the sale of vacant commercial properties and commercial property leases, will be either not subject to or exempt from the 5 per cent VAT. They further said leased commercial property will not be considered a supply during their sale by the taxable person and will therefore not be taxable.
Khalid Ali Al Bustani, director-general of the FTA, stressed that the UAE tax system has been designed to support the real estate sector in all its activities and provide a suitable environment for its continued growth and development as one of the main contributors to the national economy and investment environment.
"The Federal Decree-Law No. 8 of 2017 on VAT and its Executive Regulation provide several mechanisms to ensure the continued competitiveness of the real estate sector. For example, the law stipulates that the first supply of residential buildings within three years of completion is subject to the zero per cent tax rate, which means that owners or investors can recover the tax related to the expenses incurred on construction. Residential buildings will be exempted from tax after first supply," Al Bustani said.
Al Bustani added: "Landlords who rent their properties for residential purposes are not required to register with FTA, if all supplies made by the owner are exempt from tax. In addition, the tax paid on facility management services of commercial buildings can be deducted by the owners on their VAT returns."
Sultan Butti bin Mejren, director-general of DLD, said 85 per cent of components in Dubai's total real estate sector are not subject to the 5 per cent VAT.
"When reviewing the details of sales, rents and other transactions, we found that the value of bare land sales, residential properties, and occupied commercial and retail properties comprise the largest percentage of total properties traded during 2017. This ratio is expected to remain over the coming years and even stands to increase with commercial offices continuing to improve their leasing operations and minimise empty units," he said.
"In terms of rents, commercial real estate accounted for 31 per cent of the properties leased in the Dubai real estate market, or Dh21 billion out of Dh66 billion registered rents. As for the real estate businesses, it will be possible to recover taxes paid via the tax system," Bin Mejren clarified.
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