The Federal Tax Authority, FTA, has called on persons dealing with commercial real estate to apply the basic Value Added Tax, VAT, rate of five percent on all sales and rent of such properties, urging buyers to pay the due VAT before proceeding with the transfer of ownership.
The Authority had organised an awareness tour for the Department of Urban Planning and Municipalities at Abu Dhabi City Municipality; Sharjah Real Estate Registration Department; Fujairah Municipality; Ajman’s Department of Land and Real Estate Regulation; Ras al-Khaimah’s Land Department; and Umm Al Qaiwain’s Land Department, in addition to representatives from municipalities across the UAE, to introduce the streamlined and simplified electronic procedures provided by the Authority to facilitate payment of tax on sales and rentals of commercial property subject to VAT.
FTA Director-General, Khalid Ali Al Bustani, explained that the tour sought direct communication with Persons working in or concerned with the real estate sector to raise their awareness of tax procedures, respond to their queries, and listen to the opinions and suggestions of experts to promote tax compliance. This is part of the Authority’s commitment to strengthening relations with strategic partners from both the government and private sectors to ensure the successful implementation of the tax system, he noted.
In a press statement issued today, the FTA stressed that tax laws had specifically aimed to provide a suitable environment for the continued growth and prosperity of the real estate sector – one of the most important economic sectors in the government’s plans to diversify sources of income, and one of the most attractive sectors for investors.
"With the exception of selling unrented commercial property and rental contracts for commercial units, all other property is either not subject to or exempt from the five percent VAT rate on businesses," Al Bustani noted, adding that rented commercial property is not considered a supply when sold to Taxable Persons.
The Authority went on to explain that the sale of unrented commercial properties, or off-plan selling of commercial properties, is subject to five percent VAT, as is the rental of commercial property. However, taxes paid on the property’s expenses during a given rent period can be recovered through the Tax Return of the tenant if he/she is registered and entitled to a refund. It is also possible to recover the entirety of taxes incurred on construction that is purchased according to the capital assets system if the cost of the property is more than five million dirhams.
Real estate-related services are subject to five percent VAT on the value of the service. These include brokerage, management and real estate consultancy at the location where the property is located, and in accordance with the usual tax provisions.
"Federal Decree-Law No. 08 for 2017 on Value Added Tax and its Executive Regulations maintains the competitiveness of real estate investment," Al Bustani said. "The Law indicates that the first supply of residential buildings, made within the first three years from completion, is subject to zero-rated tax, allowing the owner or investor to reclaim taxes on construction expenses. Residential buildings are exempt from tax after the first supply."
"Owners who rent out their estates for residential purposes are not required to register with the Authority. All supplies that fall under an exempt category do not require registration in the tax system," the FTA Director-General concluded.
Representatives from the Federal Tax Authority held extended meetings with representatives from the Dubai Land Department (DLD); the Department of Urban Planning and Municipalities at Abu Dhabi City Municipality; Sharjah Real Estate Registration Department; Fujairah Municipality; Ajman’s Department of Land and Real Estate Regulation; Ras al-Khaimah’s Land Department; and Umm Al Qaiwain’s Land Department, where they introduced attendees to the procedures surrounding the implementation of VAT, as well as the categories of Taxable Persons subject to it, who are required to register with the Authority. The FTA representatives showcased the simplified procedures provided by the Authority to facilitate payment of taxes on its official website.
The representatives explained that the buyer of a vacant commercial property by a vendor who is not a developer of the building must set up an account on the FTA website, where they can complete tax-payment procedures and settle taxes through the e-Dirham portal. They are required to provide the tax amount, the seller’s Tax Registration Number, TRN, the estate’s number, date of sale, and the department where the estate in question is registered.
The FTA representatives asserted that the buyer must keep the transaction number in order to complete ownership transfer procedures at the relevant department. The seller, meanwhile, must issue a tax invoice containing the tax amount and his/her TRN. The seller shall keep a copy of the buyer’s payment of the tax to be eligible to deduct it from the tax payable in the VAT return.