The UAE introduced VAT at a standard rate of 5% on most goods and services in January 2018. However, one of the prominent sectors that was most affected by this implementation is real estate. According to the VAT law, a standard 5% VAT will apply to the supply of commercial properties within the country, depending on the type, purpose, and timing of the supply. This article explains the application and impact of VAT on commercial property in UAE, helping you navigate the complex VAT regulations related to commercial real estate in the region.
Commercial property in the UAE: Explained
According to the Federal Tax Authority (FTA), any building or part thereof that is not a residential building is a commercial property in the UAE. The following properties won’t be categorized under commercial real estate –
- Buildings designed as residential buildings;
- Buildings intended for use by charity or relevant charitable activities;
- Bare land.
Offices, shops, hotels, warehouses, factories, and land used for commercial purposes are some examples of commercial properties in the UAE. Here’s a structured breakdown:-
1. Office Spaces: Properties used for office purposes, such as headquarters, branch offices, and administrative centers.
2. Retail Spaces: Spaces used for setting up shops, malls, showrooms, and retail outlets.
3. Warehouses: Properties or spaces used for storage, distribution, or manufacturing.
4. Hotels and Resorts: Properties used to provide accommodations, dining, and leisure activities to guests.
6. Restaurants and Cafes: Spaces designed for dining businesses, such as restaurants, cafes, and casual eateries.
7. Commercial Villas: Properties converted into offices, clinics, or small schools.
8. Industrial Properties: Properties used for manufacturing and industrial purposes, such as factories, manufacturing plants, etc.
9. Healthcare Facilities: Buildings used for medical purposes, such as clinics, hospitals, etc.
10. Educational Buildings: Buildings used for educational purposes, such as educational institutions and training centers.
11. Mixed-Use Developments: Properties used for multiple purposes, such as retail, office, and residential in one location.
Applying VAT on commercial property in UAE
According to the FTA, all non-residential properties, including offices, retail spaces, hotels, serviced apartments, warehouses, etc., are commercial, except those used for charitable or residential purposes.
1. The supply of commercial property, whether for sale or lease, will be subject to 5% VAT in the UAE. The VAT shall be charged on the total amount received for the supply, including installments. Additionally, the supplier has the right to claim or recover VAT paid on the costs related to the supply of the commercial property.
2. Although the buyer is subject to VAT on the purchase of the commercial property, landlords are exempt from paying VAT on the rent received. Moreover, they can recover VAT on certain expenses such as maintenance and facility management of the property.
3. VAT also applies to fees for upkeep, security, and communal services of commercial towers and structures in the UAE. Hence, it is the responsibility of the property owners and tenants to settle VAT on these charges, thus adding extra overhead to the overall occupancy costs.
4. A 5% VAT is applicable to the supply of construction services and sale of building materials for the development or construction of commercial property in the UAE. These VAT expenses must be incorporated into the project planning considerations.
VAT on commercial property in UAE: Registration process
The VAT registration process for commercial property includes the following steps:-
1. Assess the taxability of the Commercial Properties
Commercial properties, whether leased out or sold, are taxable unless used for residential purposes. Non-resident property owners and tenants are subject to 5 % VAT on commercial property in UAE. This means if the property is in the UAE, it needs to be registered for VAT. Similarly, lease incentives, such as office fit-outs, and rents payable would also be subject to VAT under commercial rental contracts.
Movable properties, such as Mobile homes that are not fixed to the ground, would be considered commercial and hence, subject to VAT.
2. Determine the eligibility to register
VAT registration is mandatory if the value of taxable supplies exceeds AED 375,000. However, if it is between AED 187500 to AED 375000, you can opt for voluntary VAT registration.
3. Submit details to tax experts
The following information needs to be submitted to the tax experts:-
1. Details of the applicant - The details of the individual or entity operating the real estate business.
2. Details regarding the VAT Amount - The VAT amount applicable on the sale of the property.
3. TRN of the seller - The Tax Registration Number of the seller, as mentioned in the tax invoice.
4. Details of Property Number - The official property number, provided by the seller or the DLD (Dubai Land Department).
5. Date of Purchase – The date on which the commercial property was purchased.
Once all the above-mentioned details are submitted to the tax expert, they will be forwarded to FTA for further scrutiny. Upon approval, the FTA will register the entity for VAT. Additionally, the authorities may ask for additional documents, depending on the business activity, the jurisdiction of the business, and other factors.
Paying VAT on commercial property in the UAE
The following is a step-by-step guide for paying Dubai VAT on property online:-
1. Create an e-Services Account - To start off the process, create an e-Services account on the FTA portal. Once the account is successfully created, log in to the e-Services portal using your credentials.
2. Access ‘My Payments’ - Once you are on the main page, go to the ‘My Payments’ tab.
3. Select Commercial Property Sale - On the portal, select the ‘Miscellaneous Payment’ section and browse through the different options that appear on the screen. Click ‘Payment for’ and choose ‘Commercial property sale’ from the drop-down list. Before initiating this process, make sure you have a tax invoice from the seller showing the VAT amount and the seller’s TRN.
4. Enter Required Information - Enter the following details under the ‘Miscellaneous payment’ box:
- VAT Amount
- TRN of the seller
- Commercial Property Number issued by the land department
- Date of Sale of the property
- The relevant Land Department.
Once you have filled in all the requested details, click on ‘Make Payment’.
5. Complete the VAT Payment - On the ‘Payment Information’ screen, choose ‘Pay Now’ to be directed to the e-Dirham gateway. You can choose to pay either using an e-Dirham or a non-e-Dirham card. After making the payment, the portal will generate a transaction number.
VAT Deregistration for Commercial Properties in UAE
To deregister for VAT on commercial property in UAE, you need to meet the following conditions:
- Submit a cancellation request within twenty days of fulfilling the conditions.
- If the registrant ends taxable supplies.
- If the value of supplies is less than the voluntary registration limit within twelve months.
- If the registrant pays the total tax and the due administrative fines.
- Submit all tax returns for the period in which the property was registered as per the tax legislation provided by the Federal Tax Authority.
How we can assist
It is advisable to seek the expert services of our tax consultants to ensure seamless registration for VAT while staying compliant with the VAT laws. Our prominent tax advisors will gladly assist you with comprehensive VAT services, including VAT registration, VAT deregistration, VAT return filing, VAT advisory, VAT compliance, and more.
We are right here to provide you with a smoother experience. Get in touch with one of our tax specialists today.
