The VAT (Value Added Tax) came into effect approximately three years ago in the UAE. Since it has been just three years, it is quite hard to analyze the impact of VAT on Residential Real Estate in the UAE. However, if you want to clearly understand how VAT works in real estate in UAE, you will need to follow how the FDA is rating the non-taxable and taxable supplies in the real estate sector.
According to the VAT Law rates, the suppliers in the field of real estate are being rated mainly into three different categories and they are standard rated, zero-rated, and exempt. The Federal Tax Authority (FTA) usually rates bare land and an existing residential Property as exempt from the VAT. On the other hand, commercial properties, covered land and a subsequent supply of
charitable building will fall under the standard VAT rate of 5 percent.
The FDA has made it clear that the commercial properties (both leased out and sold) are subjected to the Value Added Tax (VAT) on the real estate industry in the UAE. This means that the properties used for retail and office purposes will come under the standard 5 percent VAT rate. It is significant to note that even the parking lot in a commercial building will be taxable. However, parking lots that are part of residential buildings are not taxable.
If you are still confused on what is taxable when it comes to the commercial real estate field, here is a detailed real estate VAT guide in UAE that lists taxable items under the commercial real estate sector.
● Lease incentives
● Non-resident tenants/owners
● Motels, Hotels, Bed and Breakfast joints
● Mobile home and other similar properties, which are not fixed to the ground ● Serviced apartments
In default, the FTA considers all properties other than bare land, properties built for residential needs, and the ones built for charitable activities as commercial buildings.
According to the FTA, buildings that are intended for human occupation are only considered as residential buildings. Here are some of the properties or structures that are considered as residential properties by the FTA.
● Part of buildings or buildings occupied by a person as his residence and the one that is to be occupied by someone.
● Buildings that are used for providing residential accommodation to students
● Resting Homes and Nursing Homes
● Farm Houses on agricultural properties
● Orphanages
● Residential accommodation for armed forces and police.
If the occupant of the residential building uses a small part of the structure as a workspace or office space, it will be considered as a residential building by the FTA. That said, it is best to get in touch with an excellent consultancy who offer the best advice on VAT On commercial & residential property in UAE to confirm the same.
In simple words, bare land can be described as a vacant property. As mentioned earlier, the FTA has exempted the supply of bare land from the Value Added Tax (VAT) on the real estate industry in the UAE. The FTA clearly states that bare land shouldn’t be covered by civil engineering works, partially completed buildings, and completed building structures.
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