The region’s economic growth and new investment opportunities keep raising the demand for real estate, especially for commercial properties. Anyone involved in commercial real estate deals needs to understand the VAT implications to make sure that they follow the UAE VAT rules.
What Does Commercial Real Estate Mean?
Commercial real estate is clearly explained in the VAT guide issued by the Federal Tax Authority (FTA) for UAE. Real estate includes properties made up of land or buildings. When it comes to commercial real estate, it means any property except these types:
- Residential buildings
- Buildings used for charity
- Bare land
It’s important to focus on the intended use of a property, as this will affect how VAT applies to the real estate transaction.
What Is the General VAT Impact for Supplying Commercial Real Estate in the UAE?
Once a property is recognized as commercial real estate, the usual VAT rule for any taxable supply connected to that property is the application of VAT at the standard rate, which is 5%. However, you’ll find that different situations can happen with the supply of commercial real estate. Each case must be looked at closely to figure out the right VAT treatment.
VAT Scenarios in Supplying Commercial Real Estate
Here are some key scenarios involving the supply of commercial real estate, with their specific VAT effects:
1. Leasing Out a Commercial Property
- Renting a commercial property is a taxable supply.
- The standard VAT rate of 5% applies.
- The lessor must issue a tax invoice to the lessee, showing the rent amount plus VAT.
- The lessor collects VAT from the lessee, pays it to the FTA, and records it in their VAT return.
- The lessee can claim back the input VAT, following the regular VAT recovery rules.
2. Selling a Commercial Real Estate with Existing Tenants
- If a commercial property is sold with tenants in place, this counts as the transfer of a running business.
- This transfer is out of scope of UAE VAT, so no VAT needs to be charged or paid.
- Both buyer and seller must keep documents about the transfer for at least 15 years.
3. Developer Selling Commercial Property
- When a developer sells a commercial property, it’s a taxable supply.
- 5% VAT is charged on the sale.
- The developer issues a tax invoice to the buyer, including the VAT.
- The developer collects VAT from the buyer, pays it to FTA, and reports it in the VAT return.
- The buyer can recover input VAT paid, as per the general VAT recovery rules.
4. Non-Developer Selling Commercial Property
- If someone other than a developer sells commercial real estate, this supply is also subject to 5% VAT.
- The seller must issue a tax invoice but doesn’t need to collect the VAT from the buyer.
- The buyer is responsible for paying the VAT directly to the FTA through their portal or designated banks.
- After paying VAT, the buyer provides proof of payment to the land department to finish the ownership transfer.
- Buyers may claim input VAT on the VAT they paid, based on normal VAT rules.
Key Points for VAT on Commercial Real Estate
- Always check the purpose of the property to know if it is commercial or not.
- Leasing and selling commercial properties are usually taxable at 5% VAT.
- Out-of-scope supply occurs only when a business is transferred as a going concern (like selling property with tenants).
- Buyers often can claim back the VAT they pay, if they meet the requirements for input VAT recovery.
Some Common Questions about UAE VAT on Commercial Real Estate
- Do I need to charge VAT on subleasing commercial property?
Yes, subleasing is also a taxable supply, so 5% VAT must be applied. - How do I issue a tax invoice for a commercial real estate deal?
A valid tax invoice must include all the details as required by the UAE VAT law—make sure the VAT amount, TRN numbers, and both parties’ details are correct. - If I buy a commercial office, can I recover the VAT?
Usually, yes, as long as you are VAT-registered and the purchase is for business purposes.
VAT Compliance for Commercial Real Estate
Staying compliant with UAE VAT rules for real estate deals means:
- Issuing proper tax invoices for each transaction
- Paying collected VAT to FTA within due time
- Accurately reporting VAT in your VAT return
- Keeping documents related to sales and transfers safely for 15 years
- Properly claiming input VAT where eligible
How Mubarak Al Ketbi (MAK) Auditing Can Support You
Understanding the correct VAT treatment for every real estate deal is important for full compliance. Mubarak Al Ketbi (MAK) Auditing offers professional support for your VAT needs, covering:
- VAT accounting for real estate businesses
- VAT audits and regular compliance checks
- Guidance on documentation and records
- Support in complex scenarios, like transfers with tenants or business sales
We’ve helped many clients in the real estate sector manage VAT successfully, making sure their operations run smoothly and their tax risks are minimized. You can rely on us to be with you at every stage—from VAT planning to daily VAT tasks.
What Can Mubarak Al Ketbi (MAK) Auditing Help You With?
If you want to stay ahead of the curve and not get caught “behind the eight ball” in VAT matters, here’s how we can support your business:
- VAT advisory for commercial real estate deals
- Help with VAT registration and compliance
- Preparation and review of VAT returns
- Training your staff on VAT best practices
- Regular updates on VAT law changes
For More Information
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact us for details and professional VAT support!
