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Non-residents liable to pay taxes on income from real estate: New Tax Regime

Owning a home, an apartment, or a piece of commercial property is not subject to a yearly tax in UAE. Additionally, VAT (Value-Added Tax) is not levied on commercial property transfers. Owning property in the UAE, however, will result in additional costs in the form of fees and charges. It\’s important to note that some of them must be paid by both homeowners and renters. 

A failure to comply with governmental requirements (even if it\’s an honest mistake) can result in significant fines, so it\’s important to stay up to date on UAE tax legislation.

Cost of purchasing land and property in the UAE

The following costs need to be taken into account when purchasing real estate in the UAE:

In Dubai and Abu Dhabi, the Land Department (LD) one-time fee is equal to 4% of the property\’s worth.

For land, administrative costs are AED 430 ($117), while for homes and apartments, they are AED 580 ($158).

For properties valued at less than 500,000 AED, registration fees are AED 2000 ($544) + 5% VAT, while for properties valued at more than 500,000 AED, registration fees are AED 4000 ($1088) + 5% VAT.

If you obtain a mortgage, these amounts will vary. In Dubai, mortgage registration costs are 0.25 percent of the total bank loan amount; in Abu Dhabi, they are 0.1 percent.

When everything is done, you can ask your local LD for a Certificate of Owned Property. In Dubai, this will cost you AED 260 ($70), while in Abu Dhabi, it will cost you AED 1000 ($272). It takes this process about 3 business days.

You should be ready to pay extra costs when purchasing real estate in the UAE and executing a Sale and Purchase Agreement, such as:

Fees charged by the real estate agent equal to 2% of the final sales price of the property plus 5% VAT.

The cost to issue a NOC (No Objection Certificate) is AED 1000 ($272). The certificate attests that the owner of the building has no objections to you purchasing the property. When purchasing real estate that is already in use, this sum is applicable.

If the property you\’re purchasing is still being built, the project\’s real estate developer will charge you AED 5000 ($1361) for the NOC.

UAE property maintenance fees

There are mandatory property maintenance and upkeep fees that cover things like garbage collection, janitor work, lawn maintenance, ongoing and future renovations, as well as taking care of public areas like playgrounds, gyms, and swimming pools, despite the fact that there are no federal or municipal taxes on real estate in the UAE.

Owners of homes incorporated into residential communities, as well as those who own apartments and other residential spaces, must pay an annual service fee that ranges from AED 3 to 30 ($0.82 to $8.2) per square foot of real estate. All property measures and associated costs in the UAE are computed in square feet (1 square foot equals 0.093 square meters), thus all UAE residents should get used to this.

According to a clarification from the UAE Ministry of Finance, income from real estate and other immoveable property would be subject to a nine percent (9%) corporate tax for foreign businesses and other non-resident juridical persons.

These annual service fees are calculated precisely by UAE real estate developers (i.e., building owners) using factors such property size, number of floors, equipment on-site, project infrastructure, and so on.

Rental taxes in the UAE

In the UAE, municipal governments impose taxes on rental properties that are the responsibility of the tenants. The rates of these taxes, which are based on annual rental costs, vary from one emirate to the next.

All tenants in Dubai pay 5% of the annual rent, expats in Abu Dhabi pay 3%, and renters in Sharjah pay as little as 2%. In all emirates, tenants of commercial property pay taxes equal to 10% of their yearly rent. The monthly instalments for these UAE rental property taxes are added to utilities bills.

Properties in the UAE, both residential and commercial

Every residential property is connected to land ownership under UAE law. A tent, caravan, or trailer are not regarded as residential properties. Before any development on a property can begin, \”intended use\” is another consideration.

Exclusion determines what qualifies as commercial property, therefore everything that doesn\’t fit into one of the following categories:

  • any structure designed with habitation in mind.
  • any structure intended for use by a charity in carrying out charitable operations.
  • any area of land devoid of developments or habitations.

The same UAE real estate taxes and fees that are levied on residential structures also apply to mixed-use environments (buildings that include residential spaces together with commercial, retail, or entertainment sectors).

VAT on UAE Real Estate

When it comes to paying VAT on real estate in the United Arab Emirates, everything initially seems straightforward. Residential property transactions are exempt from VAT, but commercial property transfers are subject to a 5% levy. For residential real estate, there are two different VAT statutes in the UAE: \”exempt from VAT\” and \”zero-rated.\”

Registration as a UAE VAT payer is required in the following circumstances:

  • You are an investor in the UAE who earns more than AED 375,000 per year.
  • You are a landlord renting out a flat, but you do not live in the UAE.
  • In addition to owning residential real estate in the UAE, you also have assets there.

You presently fall under ZERO RATED TAX regime If you belong to one of these categories. This implies that until the government changes your rate (which they may do if they so choose to), you are not required to pay UAE VAT on residential real estate. VAT on residential property is EXEMPTED for everyone else in the UAE.

VAT refunds on real estate in the UAE

The UAE government promotes real estate development; people and businesses can buy a plot of land, build residential property on it, and then ask for a VAT refund on the costs of construction materials and other related costs. A Building Completion Certificate must be obtained from the local development authority and submitted to the FTA no later than six months after it has been issued in order to accomplish that.

In addition, the VAT rate is 0% for the first three years following the completion of an apartment or house\’s construction on initial sales and rentals. Developers in the UAE are able to do this and receive their VAT refund without having to pay additional VAT on real estate transactions. On all future activities involving residential property, nevertheless, VAT is charged.

Additionally, any additional costs imposed by UAE property developers when they sell residential property are subject to a normal VAT rate for property buyers. The same is true for tenants and residents who must pay VAT on their annual maintenance fees and monthly electricity bills.

UAE VAT on real estate and charities

Two forms of land are recognized by UAE law: undeveloped and developed. The word \”bare\” does not refer to vegetation, but rather to the absence of any form of engineering projects or finished or unfinished buildings. VAT is not applied to bare land.

A plot of land is deemed developed if it contains buildings or other man-made constructions. All commercial dealings involving this kind of land, whether they entail its sale or lease, are subject to a regular VAT rate of 5%.

The following VAT rates apply (assuming that these areas are used only for their intended purpose) to buildings or parts of structures that are owned by charity or house charitable activities:

All initial sales and leases are subject to a zero percent VAT rate;

All future sales and leases are subject to a normal VAT rate of five percent.

UAE real estate gifts and inheritance taxes

In the United Arab Emirates, there is no VAT on real estate when it is an inheritance or \”deed of gift.\” However, these exchanges are regarded as sales technically. As a result, there is a one-time fee of 4% of the property\’s value in Dubai and 2% in Abu Dhabi that must be paid by anyone who acquires real estate through inheritance or gifting. A Certificate of Owned Property must also be issued, which costs money.

Corporate Tax on Real Estate in UAE

In the UAE, the real estate sector, like other businesses, will be subject to corporate tax based on its locations and operations.

Companies operating on the UAE mainland are typically subject to taxation while those based in freezones are usually exempt subject to certain terms and conditions.

Corporate entities earning income from real estate activities are liable for taxation, whereas those individuals without trade licenses are not taxed on any form of real estate income.

It is important to consider specific structure and location of a real estate business to determine its tax implications accurately.

The ministry further stated that this rule covers both immovable property held for investment purposes in the nation as well as immovable property held or used in a business. One of the most significant economic sectors in the UAE is real estate, which also significantly contributes to the GDP of the nation.

Corporate Tax is assessed on taxable income in accordance with Corporate Tax legislation. The amount remaining after subtracting all expenses permitted by the corporate tax regulations is referred to as taxable income. UAE corporate tax is charged on any business activity conducted in the UAE\’s territory when operating under a commercial or trade license or permit. Real estate will therefore be subject to corporation tax in the UAE much like other enterprises. In the real estate industry, revenue can originate from a variety of sources, and the bulk of these incomes are subject to taxation under the new CT regime.

These are the CT rates:

  • 0% for those with incomes under AED 375,000
  • 9% for income of at least AED 375,000

It ensures a taxation process in the real estate industry and because there is no taxation on individuals, so the demand in UAE for residential property will remain stable.

This was aimed to bring investment in the sector plus it also paves a way for businesses to operate transparently for sustainable growth and development.

While the new tax regime may impact non-residents, it is important to note that corporate tax does not apply to individuals selling or purchasing real estate assets or if the property is associated with a licensed business activity. However, a transfer tax will apply to all transactions for the individuals and corporations dealing with real estate.

For a lot of people, taxation in the UAE is new and a foreign concept. Here at AB Capital Services, we can assist you in any matter related to taxes and businesses. Contact us now to let us help you build your business.

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