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As a real estate owner in the UAE, you may be wondering how Value Added Tax (VAT) will affect your business and properties? To understand VAT implications on real estate, you need to realize that just like any product, in real estate transactions, some are considered zero-rated, taxable, and exempt. 

When it comes to VAT regulations regarding real estate, one might get intimidated by technical jargon and complexities. Don’t worry, though – we have created a brief guide of simplified VAT rules for all kinds of real estate in words that you will be able to understand easily. So, let us begin! 

Basic VAT Concepts Regarding Real Estate in the UAE

Below are all the guidelines real estate owners and professionals need to know in order to comply with VAT regulations for real estate properties in the UAE. These following guidelines pertain to both residential and commercial properties, respectively. 

• VAT on Residential Real Estate Property 

Here is everything you need to know about VAT rules regarding residential properties in the UAE. 

Types of Residential Properties 

According to the Federal Tax Authority (FTA), the following are the primary types of residential properties in the UAE:

1. Villa, flats, apartments, and townhouses that don’t provide any hospitality services like breakfast, restaurant, or perform any commercial activity. 
2. Accommodation for students like hostels or housing for workers. 
3. Housing for armed forces, military personnel, or police. 
4. Residential properties like orphanages, retirement homes, and nursing homes. 

VAT on Rent and Sale of Residential Real Estate 

Following are basic VAT rules when it comes to sale and rent of residential properties in the UAE:

1. Currently, there is no VAT on residential properties in the UAE. Therefore, owners of the residential property don’t have to pay VAT during the sale or lease of their property. 
2. As the residential property comes under the Exempt category, so the VAT paid on expenses cannot be refunded. 
3. Similarly, VAT payments of residential property, like maintenance charges, services charges, electricity, and water, cannot be recovered. 
4. A UAE citizen constructing their own house/ residential property is subject to VAT on expenses during construction. However, they can later file for a refund within 6 months of property completion. 
5. Residential property is considered zero-rated if it is not more than 3 years old. After which the property will be treated as VAT exempt. Therefore, you can apply for a VAT refund for zero-rated residential property but not for exempt property. 

Important Note: According to UAE VAT laws, all sale and purchase agreements of real estate should include the VAT clause the explains the VAT payment made by the buyer explicitly. If a transaction does not contain this clause, it is assumed that the purchase price is inclusive of the VAT amount. 

Therefore, you MUST get in touch with one of the best VAT consultancies in Dubai to ensure all payments are correct.

• VAT on Commercial Real Estate Property 

Here is everything you need to know about VAT rules regarding commercial properties in the UAE. 

Types of Commercial Property Subject to VAT 

The following are the types of commercial property on which owners need to pay VAT in the UAE. 

1. Commercial property including sold and rented offices, retail shops, or any property that comes under the definition of commercial and is not a part of the residential property. 
2. Any moveable property that is detached from the ground is also considered as a commercial property and is subject to VAT. 
3. A hotel or hotel serviced building. 
4. If the landlord and tenant are non-residents, they have to pay VAT. 
5. If a residential property is rented to non-residents, then it can be considered as a commercial property. 

VAT on Rent and Sale of Commercial Real Estate 

Below are some of the fundamental VAT guidelines in case of rent and sale of commercial property in the UAE. 

1. VAT will be applied in case of commercial leasing and renting, regardless of the type of commercial activity. 
2. VAT applies to all commercial real estate in the UAE at 5%. 
3. According to the FTA, sale of all commercial property is subject to VAT as follows:

1. If the property is sold to a registered (taxable) buyer:

1. If the property was rented and then is sold to the buyer, the seller has to charge the VAT amount to the buyer. 
2. If the property was vacant and never rented or sold, the seller charges the buyer, but the buyer can later reclaim the amount paid as VAT refund. 

1. If the property is sold to a non-taxable person, the seller charges VAT to the buyer. 
2. For the sale of commercial property, the seller has to charge the buyer VAT amount on the purchase price. 

• VAT on Mixed-Use Properties 

Mixed properties are buildings that are used for residential, commercial, and industrial use at the same time. One of the most common types of mixed-use buildings in the UAE is the one used for commercials such as offices, retail stores, and residential apartments. 

In such cases, the VAT is calculated by dividing the building into commercial and residential. Similarly, the commercial part of the building is subject to 5% VAT. If a mixed-use building is sold, VAT will be calculated only on the commercial portion, not residential. If you are facing a mixed-use situation, contact the best VAT consultancy in Dubai for accurate VAT calculation of such properties.  

Get Consulting for VAT Calculation on Property

Yes, VAT concerning real estate in the UAE can be very tricky!

VAT on real estate is complex because it is further divided into three categories, i.e., residential, commercial, and mixed-use. Therefore, it is highly recommended to get a consultation on all issues related to VAT on real estate. This way, you can ensure whether your property is zero-rated or exempt from VAT. It is highly essential because otherwise, you will miss the chance of a VAT refund.