On 1 January 2018, VAT (Value Added Tax) was implemented in the UAE to provide the UAE with a new stream of revenue that is used to invest in and diversify public infrastructure and services, helping to reduce reliance on oil and other sources of energy for revenue.
VAT can impact various facets of life, including Real Estate Companies in Dubai, to varying degrees. For this reason, we will cover all the key points in this article that you need to know while planning on investing in the UAE property market.
The distinction between exemption, which means that VAT is not a consideration, and zero-rated, which implies that VAT might be paid but can be recovered, should now be noted before going further.
The distinction between residential and commercial property is the key point in the application of VAT to the real estate industry, as the latter has specific regulations that apply to them, including VAT, which is the regular rate and is thus subject to a 5 percent VAT rate.
In comparison, residential properties are removed from VAT.
The residential properties include apartments, townhouses, orphanages, students, and accommodation for laborers. The serviced apartments however are not residential properties.
The transfer of possession of or the right to use a certain property is considered to be a supply of goods. Consequently, there are three instances where a party can need to register for VAT to be paid for it:
– Investors whose annual sales surpass AED 375,000.
– Tenants that do not have UAE citizenship. They should also not use the reverse charge mechanism, since this mechanism can be applied exclusively to products and services imported.
– Residential property owners who own other business and investment activities in Dubai Developers,
With regard to the provision of services, this term includes any service not specified in the framework of the provision of goods. This term encompasses agency and ownership transfer fees in the real estate sector and other costs related to the building, repair or conversion of a property. One should look at the time when this work happened in order to assess the VAT status of these supplies.
If the supplies occurred within the first three years after the completion of the building of the residential house, then the VAT is zero, which means that the VAT paid on the costs would be charged but completely recovered.
Every property would be managed separately in mixed-use buildings, which are properties that serve many purposes. Consequently, if a property includes mixed, residential or commercial properties, each of these properties would have its own VAT procedure.
Farukh Islam 