Relevant to onshore or mainland businesses that belong to the UAE real estate industry, the Ministry of Finance (MoF) announced the implementation of the Corporate Tax (CT) law starting June 2023. This includes individuals, either nationals or residents, with commercial/trade licenses to conduct business activities in the country. It’s crucial for individuals and businesses to consult with corporate tax advisors to be well-informed and updated on Corporate Tax in UAE.
The Federal Tax Authority of UAE (FTA), which was created in 2016, will be in charge of the administration, enforcement, and collection of the UAE’s corporate tax policy. Furthermore, the UAE Ministry of Finance is set to continue to be the competent body for international tax agreements, treaties, and other related matters, such as the exchange of key information in relation to tax.
Impact of Corporate Tax Law on UAE Real Estate
The corporate tax in UAE will be levied on ‘taxable income.’ The taxable income amounts to a business’ accounting net profit after deducting specific items referred to as deductibles, as defined by the country’s corporate tax law.
Commercial activities, which comprise all types of business activities that are carried out within the UAE falling under a commercial/trade license or permit, as well as income received under freelancer permits (if taxable income exceeds the threshold), are included in the scope of UAE corporation tax regime’s applicability.
UAE corporate tax rate is 9% which is applicable to businesses and individuals carrying out commercial activities with over AED 375,000 annual taxable income. To help navigate these recent changes, we’ll highlight the impact of Corporate Tax in UAE on businesses within the real estate industry.
Capital Appreciation From the Sale of Properties Held by Corporate Entities
Corporate entities and individuals with trade licenses investing in UAE real estate and owning commercial and/or residential properties anticipate profit from price appreciation of properties when inflation and demand are high. Although subject to further clarification, corporate tax in UAE may be imposed on capital gains realized from the sale of properties of UAE mainland businesses. Free zone entities in Dubai and the other emirates are not subject to UAE corporate tax law provided the properties are not on the mainland and/or they don’t conduct business outside the free zone(s).
Income Derived From Real Estate Development, Management, and/or Construction
Corporate tax in UAE is applicable to all transactions of corporate entities in the business of real estate development, management, and construction. This includes income from rent, maintenance, purchase, and sale of residential and commercial properties or land. The corporate income tax law also encompasses a wide range of activities and services in relation to the construction, development or provision, and management of the property of UAE-registered businesses with the exemption of free zone entities that limit activities within UAE free zones.
Income From Operations of Real Estate Agencies
Income of real estate agencies in UAE from brokerage fees and commissions from sales and other income structures are taxable under the new Corporate Tax law. Duly licensed and registered UAE businesses offering advice, judgment, and assistance on the sale, acquisition, utilization, disposal, planning, conception, and/or preservation of properties or improvements thereon are to adhere to the corporate tax law provisions.
Income of Individuals From Reits and Crowdfunding Platforms
There are individual investors with regular income from crowdfunding platforms e.g. real estate investment trusts (REITS). The income of individuals on such is not subject to the new corporate income tax law. This includes investors with shares in managed portfolios of real estate properties in the UAE. It’s important to note that exemption of real estate investment income of individuals from corporate taxation, including commissions from real estate management, service fees charged to tenants, rental income, and sale of properties, which derive from REITs, are exempt as they’re dividends or income from the ownership of securities or shares.
Capital gains of individuals on the sale of properties
Individuals who aren’t mandated by law to obtain trade licenses may enjoy capital gains on the sale of real estate properties without the imposition of the corporate income tax UAE. Capital gains and other interests that arise and are realized from real estate investments of individuals, including residential and commercial properties, are not subject to corporate tax in UAE provided the ownership of the properties is under the personal names of the owners.
All those that fall under the scope of UAE’s corporate income tax law are subject to fulfill all requirements in relation to tax return filing. For expert assistance on tax reporting and compliance, consult with corporate tax advisors in UAE. At Farahat & Co, our team of senior tax specialists offers corporate tax advisory services and company tax services in UAE, including corporate tax advice.
The expertise of our corporate tax advisors on corporate tax in Dubai, UAE runs from tax reporting and compliance to tax risk and strategies for relief. If you have questions or concerns about the impending implementation of corporate tax in UAE, contact us today so we can help!