An overview of VAT on Commercial Property UAE

The UAE real estate sector is probably one of the industries most affected by VAT on Commercial Property UAE. Some of the factors that affect the applicability of VAT on sales of real estate properties include; usher and intended use of the property, and the time of the transaction. The VAT on residential and commercial buildings are different. The impact of applying VAT and particularly its consequences on supply of the commercial real estate in the United Arab Emirates will be discussed within this article.

Thus, if you seek an outlet for VAT registration in UAE, a tax consultancy like VAT registration UAE can help you understand the various VAT on commercial property UAE transactions that are charged with VAT in UAE. 

VAT on commercial property in the UAE: The definition of the commercial property 

The residential and non-residential building VAT are not the same thing. The buildings or parts of buildings in the FTA that do not meet the criteria provided below are classified as commercial properties. This comprises of properties for business such as commercial buildings, business premises, buildings for trading, buildings for accommodation, storage buildings, manufacturing buildings and parcels of land. To consider a property as commercial, the following types of property are expunged; 

• vacant lands
• Residential buildings
• Structures that are used by non-profit organization for charity purposes.

The requirements for VAT registration for real estate in UAE 

For real estate commercial transactions, when a taxable person has exceeded the required registration level of AED 375,000 in the past 12 months or is anticipated to do so in the next 30 days, they must apply and receive the TRN by registering for VAT with the FTA. Administrative fines and interest on the VAT liability, if applicable, may be imposed for late registration. When the threshold has surpassed AED 187,500 in the past 12 months or is anticipated to be exceeded in the next 30 days, the taxable person may also choose to voluntarily register for VAT.

UAE VAT Rates on Commercial Real Estate Transactions

The UAE VAT rates on commercial real estate transactions vary. A few instances of UAE commercial real estate deals are shown below:

• Commercial property lease
• Commercial real estate sales
• Commercial property sold to a VAT-registered individual in which the existing lease is considered a business transfer

UAE VAT is applied to commercial real estate transactions at the regular 5% rate. The Federal Tax Authority VAT regulations are applicable to the above deals accordingly.

Regarding commercial real estate transactions, who should be registered for VAT? 

The literal rules about VAT imply that every natural person and juridical entity, engaged in the commercial activities in relation to the real estate in the United Arab Emirates, has to be a VAT registered entity.

VAT on commercial property UAE: Collection of VAT and payment to the FTA

The following are the rules applicable for VAT on commercial property UAE

• Commercial property lease: The owner registers, collects, and pays the Federal Tax Authority VAT from a renter. VAT paid on costs associated with the commercial property rental business may be recouped by the owner. 
• Developers that sell commercial real estate register, collect VAT from buyers, and submit payments to the Federal Tax Authority. 
• Commercial property sales by non-developers: The buyer receives a tax invoice from the seller, pays the VAT to the Federal Tax Authority, and provides the Land Department with the payment confirmation to finalize the ownership transaction. 
• Commercial real estate sold to a VAT-registered individual in which the existing lease is considered a business transfer: No VAT applicable depending on the condition fulfillment.

VAT on commercial property UAE for commercial property related services

Here are some instances of UAE-based commercial real estate services.

• Building upkeep
• Associations of owners and other associated services
• Gas, water, electricity, and cooling
• Fees for real estate agents

VAT is applied to all of these associated services at the regular rate of 5%. Input VAT credit may be used to account for the VAT paid on certain costs.

VAT on commercial property UAE:The Capital Asset Scheme

Any single company expense that is worth at least 5 million dirhams is considered a capital asset. According to UAE VAT Law, the VAT paid on such expenses would be taken into account in the Capital Asset Scheme. The anticipated useful life of real estate assets under the Capital Asset Scheme is ten years or more, whereas that of non-real estate assets is five years. In the instant VAT filing, the VAT paid on capital asset scheme expenses can be recouped. The VAT-claimed component of such supplies will be deemed ineligible if the assets are used for non-business activities or to make exempt supplies during their lifetime.

VAT on commercial property UAE: FAQs

1. What is the VAT rate on commercial property in the UAE? 

Ans: The Commercial property transactions are subject to the standard rate of VAT as per the guidelines. This means 5% VAT is applicable on all commercial properties in the UAE.

2. Are residential properties subject to VAT in the UAE? 

Ans: No. The residential properties in the UAE and the bare lands are VAT exemot as per the FAT guidelines.

3. When is VAT registration mandatory for property owners? 

Ans: Yes VAT registration becomes mandatory for property owners if their annual turnover exceeds AED 375,000. Voluntary VAT registration can be done if the turnover goes above 187,500 AED. Once registered VAT compliant invoices, accounting and filing becomes mandatory for the business.

4. How does VAT apply to dual-use buildings? 

Ans: The process of selling or renting the residential part of the building is subject to the zero-rate in the event of a first supply, or exempt from tax if there is a subsequent supply. And if the commercial part of the building is sold or rented, it becomes subject to VAT at the rate of 5%.

5. Can I recover VAT on commercial property costs or what rules are applicable for VAT refund for real estate?

Ans: The owner can recover VAT paid on expenses related to the commercial property renting business. Sales of commercial property by a developer: the developer registers and collects VAT from the buyer and pays to the Federal Tax Authority

VAT on commercial property UAE can be understood clearly with the agents at VAT registration UAE

Businesses and property owners have to understand the consequences of implementing VAT to the commercial property in the United Arab Emirates, though it may be a complex issue at that. Lease and sales agreements of commercial properties attract a 5% value added tax. Buyers bear the responsibility of paying VAT on properties whereas landlords alone are responsible for the accounting of VAT for rental income. Nonetheless, input VAT on property-related expenses is frequently refundable to VAT-registered companies. Getting professional advice is crucial to guaranteeing compliance and optimizing tax advantages Contact us today to get your VAT related queries sorted.