VAT Implications for Overseas Property Investors in UAE

Overseas property investors are waiting to see how the new revised VAT law in the United Arab Emirates (UAE) will affect property sales.

Though the full impact is obviously yet to be seen, it is reasonable to make some estimations as to how the new tax will affect the property market.

For a start, all residential property transactions in the UAE, including rentals, will be exempt from the new 5 per cent tax, and will be zero rated for VAT purposes.

Therefore purchasers buying their own home, or overseas property investors purchasing property to rent out will not be subject to the new tax.

The sale and purchase of newly constructed real estate is likely to be zero rated (that is, reported on a tax return but taxed at a zero per cent rate). Therefore, investors in residential property will not be required to pay VAT to the developer or a subsequent seller.

People renting residential property will also escape the taxation as residential leases are exempt from VAT, so it cannot be added to rent.

However, landlords and property investors are likely to have to pay VAT to providers of leasing or management services relating to the property and will not be entitled to recover this VAT.

In addition, developers’ documentation should clarify that VAT will be payable by investors in order to meet the new regulations.

The first sale of newly built homes will be taxed at zero rate, enabling property developers to claim back any VAT they had to pay from the UAE government.

Indeed, the main implications from the new VAT tax law would seem to be only for large scale investors and transactions concerning commercial property.

Commercial tenants will also have to pay VAT on rent, though most commercial tenants will be able to offset this VAT against VAT that they are collecting on their supplies.

It seems that for domestic and overseas property investors in the UAE residential property market it will be pretty much business as usual.