Value-added tax (VAT) has been introduced from the 1st of January, 2018, in the UAE on all property transactions which includes Dubai. VAT is fixed at 5% and this is one of the lowest such rates globally with several countries like Spain and the United Kingdom charging in excess of 20%. There have been a few concerns amongst investors and homebuyers with regard to the impact of VAT on Dubai real estate. There are concerns related to issues linked to cash flow, i.e. compensation of VAT paid with VAT charged.
Paying more for property purchases could have dampened sentiments a little. The introduction of VAT for Dubai’s property transactions could make a slight difference with regard to the interest of buyers as per experts. 5% is one of the lowest VAT rates across the globe and since it is majorly charged by one party and claimed by another, the impact should be minimal.
The VAT on supplies is inclusive of services by registered companies including accountants, lawyers and so on and also the levy which is paid to suppliers for producing goods and services. These outputs and inputs should be leveling each other but sometimes it may not be practical to charge VAT for both cases. The goods and services can be exempted from VAT. Zero-rated tax indicates that no taxes are imposed on goods and services which are sold or produced while levies on production costs for inputs can certainly be recovered.
The first residential property supply is zero-rated within 3 years of being completed. Developers can also recover VAT payments on the construction of residential property, inclusive of contracting, consulting, architectural design and the materials which are used. The resale/secondary real estate market has been exempted from VAT at the point of sale but buyers will have to pay their taxes on government fees and commissions linked to individuals. VAT is payable on Dubai real estate by way of management services/lease management solutions tied to properties.
VAT will have to be paid on Dubai realty by buyers of commercial property for both secondary and off-plan units. In case the property acquisition takes place for leasing to tenants, the VAT cost can be claimed while levy is charged for tenants. Tenants who pay VAT with their rent can also recover the same from commercial activities while charging it for goods and services. All commercial property owners in Dubai have to undertake VAT registration in case value of supplies for the last 12 months exceeded Dh375, 000 or if they will exceed this threshold within 30 days.
Homeowners do not have to opt for VAT registration if they do not have any other business activities that are taxable in the Emirates. VAT is thus poised to have a negligible impact on the residential real estate market in Dubai and this should allay the fears and concerns of homebuyers and investors alike.