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In the UAE, residential real estate will not be subject to VAT

In the UAE, residential real estate will not be subject to VAT


According to the explanation of the Federal Tax Service of the UAE, residential real estate, unlike commercial, will not be subject to VAT.

The FTS note that residential buildings during the first three years after construction will not be subject to value added tax. For the first three years, all deliveries for these objects will fall under the preferential category.

However, all commercial real estate will be subject to VAT at 5%.

The FTS added that the owners of residential real estate do not need to register as VAT payers, if they do not conduct any commercial activity.

Owners of non-residential buildings are required to register if the cost of deliveries within 12 months exceeds 375,000 dirhams, or if the predicted value within the next 30 days exceeds this figure.

Residential property owners will not be able to receive VAT compensation for expenses related to residential buildings that fall under the preferential category, while owners of commercial real estate, as a rule, can claim such compensation.

In case of mixed use of the building, the rent and sale of its residential part is calculated at a zero rate or falls under the preferential category – depending on whether the real estate transaction is first or next – while the rent and sale of commercial parts of the building is subject to VAT.

As Andrey Panferov, Senior Consultant of Davidson & Co Law Company, notes, VAT comes into force in the UAE on January 1, 2018. The initial sale by residential property developers during the first three years will be taxed at a zero rate, therefore the sale price of new buildings should not increase by the amount of VAT. Purchase and sale of secondary residential real estate between individuals will also not be subject to VAT. Owners of commercial real estate should pay attention to the need to register with the Federal Tax Service, in case their activity falls under the registration requirements.

The tax levied on the owner of a mixed-type building is charged in proportion to the types of real estate belonging to him. Taxes paid for commercial real estate can be partially offset.

Permanent address of the material: RUSSIAN EMIRATES

Source: Arabian Business


Aziz Kamekov

Leading Real Estate Specialist in Dubai
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