Published August 09, 2022 17:14 PM
UAE Tax System Help Real Estate Sector
In the United Arab Emirates, the real estate industry supports a sizable number of livelihoods and offers the vital infrastructure, commercial, and residential spaces required for the nation’s growth. Let’s define real estate and examine how the supply of real estate is handled in the UAE with regard to VAT.
All real estate transactions, with the exception of the sale of vacant commercial properties and commercial property leases, will either be exempt from or not be subject to the 5 percent VAT, according to the FTA and DLD, while leased commercial property will not be regarded as a supply during its sale by the taxable person and will not, therefore, be taxable.
Director General of the FTA, His Excellency Khalid Ali Al Bustani, emphasized that the UAE tax system has been created to support the real estate sector in all of its operations and to provide a suitable environment for its continued growth and development as one of the major contributors to the national economy and investment environment.
UAE VAT In The Use Of Land and Buildings
Under UAE VAT law, there are a variety of distinct VAT treatment options for real estate transactions. In order to ensure that the proper VAT treatment is applied—5%, 0%, or exemption—the supplier must evaluate the conditions, facts, and intentions for the land or structure at the time of supply.
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UAE VAT Category
Residential Property
A structure that is planned and created for human habitation is known as a residential building.
A residential building’s first delivery will be exempt from VAT in the United Arab Emirates. However, there is a need that the first supply be made within three years of the building’s construction from being VAT-exempt.
In the UAE, property developers can need to register for VAT. They must, however, sell to the new property at zero percent VAT. All business expenses can eventually be reimbursed by the developer for VAT. The purchasers or sellers are exempt from paying VAT by charging a 0% VAT. But a zero-rated home enables the developer to sign up for VAT and recoup the input VAT (the VAT charges on purchases).
The cost of supplies and building materials for an Emirati person building their own home may be subject to VAT. Within six months of the certificate’s completion, they can submit a request for a VAT refund.
There isn’t yet a specific VAT to pay for residential property in the UAE. Landlords of residential homes are typically excluded from paying VAT when renting out or selling their houses.
In addition, any VAT paid for residential property services such service fees, maintenance fees, energy, or water cannot be recouped.
VAT On Bare Land
Land refers to any region on the surface of the earth, including any trees, plants, or other natural features that are present in, under, or on top of it. Land that is unencumbered by fully or partially constructed structures or by civil engineering projects is known as bare land.
“VAT is not applied to the supply of vacant land”
It shall be deemed commercial land and liable to VAT at the usual rate of 5% when a plot of land is supplied that is not “bare land.”
VAT is not applied to the supply of vacant land. Included in this is the provision of vacant land through sale or lease. The provider will not be able to recoup VAT on expenses related to the delivery of bare land as a result. For instance, agent commissions, legal costs, etc.
When a piece of land is provided that does not fit the criteria of “bare land,” it is deemed to be commercial land and the supply is liable to VAT at the usual rate of 5%. As a result, the supplier will be qualified to recoup the VAT paid on expenses related to providing the plot of land.
What policies will be in place for leasing undeveloped land?
When a landowner leases a piece of property to a tenant who plans to develop it, it’s crucial that the landlord specifies whether he’s giving the tenant covered land or bare ground. The supply of vacant land made by a landlord is exempt from sales tax (VAT). Land that is not completely bare when it is supplied by the landlord will be liable to VAT at the regular rate of 5%.
Therefore, the delivery of bare land will be exempt from VAT under UAE VAT law. A plot of land that is supplied but does not fit the concept of bare land is liable to VAT at the rate of 5%.
VAT On Commercial Sale Properties
All commercial properties in the UAE are subject to a 5 percent VAT. The seller may add the VAT amount to the purchase price for selling purposes. The sale of a commercial property is liable to VAT payment in the following ways, per the Federal Tax Authority:
Whenever a taxable person purchases the commercial property (Buyer)
- The seller will charge the buyer the VAT amount if an empty property that has never been rented is sold. The Buyer, however, has the option to later request a refund of the VAT he paid.
- if the property was rented out completely or in part before it was sold to a buyer, the seller must charge the buyer the VAT amount.
If the buyer (a non-taxable person) purchases the commercial property, the seller must charge the buyer the VAT amount.
The UAE VAT Law stipulates that Sale and Purchase contracts must have a specific VAT clause that specifically identifies the VAT payment that the buyer is required to make. It is presumed that the purchase price includes the VAT amount if there is no mention of it in the agreement.
VAT On Mix Use Developments
Commercial spaces including offices, retail stores, and residential homes make up the majority of projects for mixed-use buildings in the United Arab Emirates. By clearly separating the structure into commercial and residential uses, the VAT in such projects is computed. Either a zero-rated supply or a VAT exemption plan will apply to the lease or sale of the building’s residential portion.
If this is the first supply made in the three years following the issuance of the completion certificate, the zero-rated supply scheme will be in effect. If not, the VAT exemption scheme will be in effect.
The commercial portion of the building may be leased or sold subject to a 5% VAT.
Only the commercial section of a mixed-use building will be subject to 5% VAT if the entire property is sold. Vat will either be zero-rated or waived for the residential part.
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