VAT Treatment of Real Estate Properties in the UAE

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Since its introduction in the UAE, VAT has become an integral part of business operations across various sectors, including real estate. The real estate sector, with its unique transactions, faces specific VAT regulations. From residential to commercial properties, different VAT rates and provisions apply, influencing the way sales, rentals, and property-related services are taxed. 

In this write-up, we have given an overview of the rules relevant for property owners, developers and other service providers. 

VAT Applicability 

VAT rules vary significantly between residential and commercial properties:

• Bare Land: Any sale or lease of bare land is exempt from VAT. 
  
  
• Residential Buildings: The sale or rental of residential properties, including apartments and villas, is exempt from VAT, provided they are not serviced properties. This exemption extends to specific accommodations such as those for students, labourers, and the armed forces. Owners of residential properties do not charge VAT on rent or sale​. 
  
  UAE citizens building their own residences can claim a VAT refund on construction-related expenses. This claim must be submitted within six months of either moving into the residence or receiving the completion certificate. This provision helps ease the tax burden for citizens building their homes​.
  
  
• Commercial Buildings: In contrast, a standard VAT rate of 5% applies to the sale or rental of commercial properties, including shops, offices, warehouses, clinics, hospitals, schools, and serviced apartments. It also includes property leased to non-residents (tourists, business visitors) on a short-term basis. Commercial property owners must register for VAT and charge a standard 5% VAT on rentals and sales.
  
  
• First Supply of Property: The first supply of newly constructed residential properties in the UAE is subject to a 0% VAT rate. This applies to the initial sale or lease of a property by the developer to the buyer. The zero-rating allows developers to recover the VAT incurred on construction costs and other related expenses, reducing the financial burden on the buyer. 
  
  
• Property-Related Services: Various services related to properties are also subject to VAT, including building maintenance, owners association services, utilities, real estate agent fees​ etc. VAT applies to these services at the standard 5% rate. 

A detailed understanding of VAT applicability on real estate transactions is discussed in the flowchart issued by the FTA.  

Registration 

All owners of commercial buildings, developers, and service providers subject to VAT must register if their taxable supplies or imports exceed AED 375,000 annually. Once registered, the taxpayers are allotted the Tax Registration Number (TRN) and are required to comply with tax obligations, including issuing tax invoices with the TRN, filing tax returns, and paying VAT.

Conclusion

The VAT treatment of properties in the UAE is a complex but essential aspect of real estate transactions. Corporate taxpayers as well as individual taxpayers transacting in residential properties must be aware about the VAT applicability and the eligible benefits. 

Further, considering the difference in the tax treatment of residential and commercial properties, it is important for taxpayers to classify their properties appropriately to avoid tax litigation. 

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice