Propertyfinder Group says there is still confusion about residential and commercial building VAT exemptions
Some UAE residents are still unclear about what kinds of properties will incur value-added tax (VAT), according to Propertyfinder Group.
“The biggest confusion we are seeing in the market is the mixing up of a real estate transaction (rent or sale) with the service of a real estate broker, whereby for a commercial building both will incur a 5 percent VAT and for a residential building the first one will not incur any VAT as opposed to the second one (5 percent),” said Simon Comina, chief financial officer at Propertyfinder Group.
“As such, VAT should not have any major slowing down effect on a buyer-friendly real estate climate and should have a minimal impact on any of our residential rents,” he added.
Owners of residential properties – either homeowners or investors in residential buildings – do not need to register for VAT as long as they do not have other business activities.
The first supply of a new residence handed over by a developer is zero-rated within the first three years following its construction, with subsequent rentals or sales exempt from VAT.
However, the owners of commercial properties will have to register with the Federal Tax Authority (FTA) if the value of supply – the lease and/or sale – over the preceding 12 months or in the coming 30 days exceeds AED 375,000.
The VAT rate for the sale and rent of commercial properties is 5 percent. However, owners registered with the FTA will generally be able to recover VAT with respect to expenses related to the supply of the building.