The effect of VAT on the property market in the UAE

The introduction of VAT in the UAE has been the most buzzing topic of conversation recently, coming into effect on January 1st, 2018 at a standard rate of 5%. Here is how it will affect you.

Residential Properties

Do I have to pay VAT if I own, plan to buy or rent-to-buy property?

The “first time” supply of residential properties (by developers), for both rental or purchase, will be zero-rated for the first three years of completion. This means that any “first-time” tenant or “first-time” purchaser will therefore not pay VAT on their lease or purchase amount.

If you are looking to buy property, whether as a homeowner or an investor, you do not have to pay VAT (on the condition that you are not involved with any other business activities.)

What about renting, are residential rental leases subject to VAT?

Residential leases are not subject to VAT.

Commercial Properties

If I own/plan to buy a commercial property do I have to pay VAT?

If you own a commercial property, you should register with the FTA (Federal Tax Authority).

An owner of any building which is not residential will have to register if the value of the supplies over the coming 12 months exceeds Dh 375,000 or it is anticipated that they will exceed DH 375,000 over the next 30 days.

VAT will be applicable starting from January 1, 2018, for both commercial tenants and purchasers.

How much is VAT expected to generate in the first year?

VAT could generate AED 12 billion in its first year alone, says Sultan bin Saeed Al Mansouri from the UAE Ministry of Economy. The generated amount may be reinvested into domestic infrastructure projects and if so, this could help draw in a great deal of tourists to UAE and to Dubai’s real estate market in the coming years.

Click here to find out how VAT will affect the motor industry.

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