The United Arab Emirates (UAE) introduced Value Added Tax (VAT) at a standard rate of 5% on January 1, 2018. VAT is an indirect tax applied to the consumption of goods and services in the UAE, collected by registered businesses and remitted to the Federal Tax Authority (FTA). One sector affected by VAT is the real estate industry. The supply of real estate properties in the UAE can be subject to VAT depending on factors like type, purpose, and timing of the supply.
In this article, we will explain how VAT applies to the supply of commercial properties in the UAE.
UAE VAT registration is the process of enrolling a business with the FTA to collect and pay VAT on behalf of the government. The standard VAT rate is 5% for most supplies, except for exempt and zero-rated supplies. Businesses may need to register for VAT based on their turnover and activities, falling into two types: mandatory and voluntary.
A business must register for VAT if its taxable supplies and imports in the last 12 months exceed AED 375,000, or if it expects them to exceed AED 375,000 in the next 30 days. This doesn’t apply to foreign businesses making taxable supplies in the UAE.
A business may choose to register if it doesn’t meet the mandatory criteria but its taxable supplies and imports or taxable expenses in the last 12 months exceed AED 187,500 or are expected to exceed AED 187,500 in the next 30 days.
A commercial property is any building or part thereof that is not a residential building as defined by the FTA Commercial real estate is any land or buildings, that are not one of the following:
Examples of commercial properties include offices, shops, hotels, warehouses, factories, and land used for commercial purposes.
The supply of commercial real estate, whether by sale or lease, is subject to the standard VAT rate of 5% in the UAE. The supplier must charge VAT on the total amount received for the supply, including any installments. The supplier can also recover any VAT paid on the costs related to the supply.
If a supply of commercial real estate is canceled, for instance, if a planned development does not go ahead, the supplier must normally refund the customer any payments made for the supply. The supplier must also issue a tax credit note to the customer, which will cancel out the output tax that was previously reported.
However, if the supplier is allowed to keep the payments made by the customer, the supplier must determine the reason for this and the VAT treatment accordingly. If the payments are considered as compensation for a service provided by the supplier, they will still be subject to VAT at 5% and no tax credit note will be required.
The special payment process for VAT applies to certain transactions involving commercial real estate in the UAE. The special payment process applies only to commercial properties sold by a supplier other than the developer and is subject to 5% VAT. It does not apply to:
The lease of commercial real estate is subject to VAT at 5% in the UAE. The owner must register for VAT if the value of their supplies exceeds the mandatory registration threshold of AED 375,000. The owner can also recover VAT paid on expenses related to the commercial renting business.
Other services related to commercial real estate that are subject to VAT at 5% in the UAE are:
VAT Deregistration is the process of canceling the VAT registration with the FTA in UAE.
A person or a business entity can apply for VAT Deregistration if :
An application for VAT Deregistration must be submitted within 20 business days from the date of occurrence of the event that requires deregistration with the FTA under Article 21 of the VAT Law. In case of failure, penalties may be imposed.
An application for VAT Deregistration must be made through the FTA e-Services portal and accompanied by the relevant documents.
The FTA will approve or reject the application within 20 business days.
Any tax liabilities and tax returns must be settled and filed before applying for VAT Deregistration.
Commercial property owners and tenants must comply with the following obligations under the UAE VAT law:
Also read: VAT Registration for Commercial Use of Property Under Mandatory Threshold
VAT Registration of commercial property in the UAE can be a complex and time-consuming process that requires a thorough understanding of the VAT laws and regulations. VAT Consultants at Farahat & Co. can help you with this process by providing the following services:
By hiring VAT Consultants at Farahat & Co., you can save time, money, and hassle while ensuring compliance with the UAE VAT law for your commercial property.