VAT Law Effect on Real Estate Sector in UAE
The UAE introduced Value Added Tax (VAT) at 5% from 1 January 2018. According to the FTA and Dubai Land Department, VAT’s impact on real estate is limited, as about 85% of the sector’s components are exempt from tax. This law was designed to diversify government revenue while maintaining investor confidence.
Key Features of VAT Law in Real Estate
The VAT Law divides real estate supplies into three categories:
- Exempt: No VAT charged (e.g., resale of residential property, bare land).
- Zero-rated: VAT charged at 0% (e.g., first sale of residential property).
- Standard-rated: VAT charged at 5% (e.g., commercial property sales, leases, utility charges).
Hotels, serviced apartments, and bed & breakfast establishments fall under commercial property and are taxed at the standard rate.
VAT-able and Non-VAT-able Components
- Exempt: Sale of bare land and resale of residential property.
- Zero-rated: First-time sale or lease of residential property within 3 years of completion.
- Taxable: Commercial property sales, leases, service charges, and utilities.
This approach protects end-users of residential property while ensuring commercial real estate contributes to tax revenue.
Impact of VAT Law on Real Estate
Initial data shows that VAT has not caused major inflation or reduced investor interest. It has helped create a steady source of revenue for public services.
Impact in Sharjah
The Sharjah Real Estate Registration Directorate (SRERD) reported that in the first half of 2019:
- Residential properties made up 69.7% of total transactions.
- Commercial properties accounted for 17.8%.
- Industrial properties were 10%.
- Agricultural properties were 2.5%.
This indicates that residential property continues to dominate the market despite VAT.
Impact in Dubai
Dubai witnessed lower property prices and rentals in 2019 due to oversupply, not because of VAT. Key insights include:
- Delivery of 47,500 new units (double of previous year).
- Apartment prices dropped 14.1% year-on-year.
- Villa prices dropped 14.9% year-on-year.
- Rental rates dropped 5% for apartments and 8% for villas.
Market confidence remains strong as investors continue to show trust in UAE’s property sector.
What Can Help – Mubarak Al Ketbi (MAK) Auditing
Mubarak Al Ketbi (MAK) Auditing offers VAT consultancy, tax compliance, and business advisory services for real estate investors and developers. Our experts ensure you follow the latest FTA rules, avoid penalties, and stay ahead in a competitive market. After all, a stitch in time saves nine.
- For more information visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp us: +971 50 276 2132
