How does VAT affect UAE property seekers?
Everybody living in the UAE is asking how the revised VAT law will impact property sales in region.
Since the PropertyFinder Group depends on our information and earlier performance to provide market insight, we are all thinking you can prepare as much as you like but ultimately, we will have to wait and see.
It is plausible, however, to make a few suggestions for how a brand-new tax will influence sales. The five percent value-added tax (VAT) on real estate transactions is due to impact only big investors and those buying and renting commercial properties across the UAE.
In the meantime, residential transactions, including rentals, will remain tax free and so should not be affected.
That is uplifting news for home-buyers. All residential real estate, both for first-time purchasing and for purchase to-lease, will be liable to VAT at zero percent.
Private tenants will escape tax assessment on the grounds that private residential leases are absolved from VAT, and therefore they would not be permitted to add VAT to rent. In any case, proprietors may lose out on different costs that introduce VAT, making rental costs susceptible to an uptick.
From a developer’s point of view, VAT will indefinitely affect the cost of development contracts, since goods and services associated to construction are taxable.
Since Dubai developers have been increasing the marketing and launches of off-plan developments in the last twelve months, it is critical that they secure procedures so they are set up to recover potential losses under the new tax system.
As the sale and purchase of new property is likely to be zero rated, investors in private property won't be required to pay VAT to the developer or seller.
In contrast, investors are most likely going to have to pay VAT to providers of leasing and management services relating to the property and won't be permitted to recuperate this VAT. Consequently, heavy investors and developers are expected to feel a pinch. Additionally, developers’ documentation should confirm and state that VAT will be payable by investors otherwise they’ll be on the hook. For commercial tenants, it will be compulsory to pay VAT, however for most this won’t be a significant issue as they will be able to offset this VAT against VAT they are paying on their materials and supplies used for construction.
The initial, first sale of new property will be taxed at a rate of zero percent. Therefore, property developers will be eligible to claim back any VAT they had to pay from the government. Residential tenants’ leases will be VAT exempt, but commercial tenants – those in offices, shops, etc – will have to pay VAT at the standard rate of five percent.