The Federal Tax Authority (FTA) and Dubai Land Department (DLD) have stated that all real estate transactions, except for the sale of vacant commercial properties and commercial property leases, will be either exempt from or not subject the five percent VAT. Leased commercial property will not be considered a supply during their sale by the taxable person and will therefore not be taxable, according to Emirates News Agency (WAM).

FTA Director-General, Khalid Ali Al Bustani, said 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, in a statement on published on WAM.

"The Federal Decree-Law No. 08 of 2017 on Value Added Tax 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 percent 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.

He 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."

DLD Director-General, Sultan Butti bin Mejren, said, "85 percent of components in Dubai’s total real estate sector are not subject to the 5 percent 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."

Bin Mejren clarified, "In terms of rents, commercial real estate accounted for 31 percent of the properties leased in the Dubai real estate market, or AED21 billion out of AED66 billion registered rents. As for the real estate businesses, it will be possible to recover taxes paid via the tax system."

WAM reported: “The components of the tax-exempt real estate sector include bare lands if they are sold or leased when no building or engineering works are on the lands. Upon commencement of any real estate development work, tax will be applied.”

“Residential buildings are not taxable if sold or rented. These include apartments, buildings, residential villa complexes, housing for workers and students, accommodation for armed forces and police, and homes for the elderly, orphans and nursing homes. The law specifies that the period of the lease shall be more than six months or to the holders of the identity card issued by the Federal Authority for Identity and Citizenship. However, this does not apply to buildings not fixed on lands, hotels and hotel apartments, or apartments offering services in addition to housing.”

The same applies to real estate transactions for residential buildings, including sales, rents, leaseholds and long-term leases. In these cases, the owner of the property benefits from the zero rate. For new residential properties constructed by businesses or developers, the tax paid may be recovered if the supply is made within three years after the completion certificate, according to WAM.

Information sourced from WAM- Emirates News Agency.

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