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VAT on Commercial Real Estate in the UAE

Value Added Tax, also known as VAT, is a tax incurred on consumption or use of goods and services for each transaction. Across the UAE, the standard rate of VAT is fixed at 5%. The VAT paid by customers is collected and accounted for by the registered businesses in the UAE on behalf of the government. The total VAT amount is then paid to the government, that helps to contribute to the government revenue.

VAT Registration for Commercial Use of Property Under Mandatory Threshold

 

VAT on the Sale of Commercial Properties

  • A 5% VAT applies to all commercial properties in the UAE.
  • For selling purposes, the Seller may charge the Buyer the VAT amount on the purchase price.
  • The owners of commercial properties may register for VAT as required in the UAE VAT law.
  • According to the Federal Tax Authority, the sale of a commercial property is subject to VAT payment in the following manner:
  • If the commercial property is sold to a taxable person (Buyer)-
  1. If a vacant property that was never rented is sold, then the Seller charges the VAT amount to the Buyer. However, the Buyer can later claim the refund of the VAT amount he paid.
  2. If the property was rented or partially rented and is then sold to a Buyer, then the Seller charges the VAT amount to the Buyer.
  • If the commercial property is sold to a non-taxable person (Buyer)- The Seller charges the VAT amount to the Buyer.
  • According to the UAE VAT law, Sale and Purchase agreements should contain a specific VAT clause that explicitly mentions the VAT payment to be made by the Buyer. If a clause for VAT does not exist in the agreement, then it is assumed that the purchase price is inclusive of the VAT amount.

VAT Registration Cost

VAT on the Rent of Commercial Properties

  • VAT will be applied to commercial leasing, regardless of the type of commercial activity.
  • For renting purposes, landlords should charge the VAT amount to the tenant on the rent of the property.
  • VAT is also paid on services to maintain a property such as maintenance cost paid to the developers.
  • VAT paid on other services such as for electricity and water to the Dubai Electricity & Water Authority (DEWA) and other utilities can be recovered.

VAT on properties used for commercial purposes

  • If the property or building is solely for residential use and does not involve any commercial purposes in the premises, then the landlord cannot charge VAT on the rent or sale of that property.
  • However, if the building is a mixed development, then the landlord can only charge VAT to the tenant for the commercial parts of the building.
  • During the sale of the mixed development building, the VAT amount will be charged only on the commercial portions of the building.
  • If any property in the building is used for commercial purposes, then the rent or sale of such a property is subject to VAT charges.

Types of Commercial Properties that are subject for VAT

  • Commercial properties consist of both rented and sold offices, retails, or any property that explicitly mentions to be a part of commercial property and not a residential property.
  • If the landlord and the tenant are non-residents, they have to still pay the 5% VAT.
  • Any free incentives provided by the owner; the VAT can be charged.
  • A movable property that is detached from the ground is considered as a commercial property.
  • A hotel or a hotel serviced apartment can charge VAT
  • If a residential property is rented out for a short term to non-residents then it can be considered as a commercial property.

https://farahatco.com/blog/vat-refund-claims/

Reclaiming VAT

  • The VAT can only be reclaimed by the taxpayer.
  • A request for VAT refunds can be filed on the Federal Tax Authority website.
  • The authorities will take approximately 20 days to approve your claim if you are eligible for the refund. The taxpayer will receive the refund within 5 days from approval
  • The taxpayer must fulfil certain other conditions to be eligible for a refund, such as:
  1. The taxpayer should have a business registered under VAT.
  2. The VAT invoices must be presented to the authorities as a proof, for claiming a refund.
  3. The taxpayer should claim for a refund within 6 months of the purchase.

Reasons for hiring a VAT Consultant

VAT Consultants in UAE

By appointing a VAT Consultant, the complex process of VAT gets simpler. Farahat & Co. provide its customers with various services related to VAT. They offer VAT consultations, if you own a commercial property in the UAE, they advise over issues such as filling of VAT and to claim the refund of the VAT. They also offer VAT accounting that can help accurately file the returns of your business.

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions. Read more