This comprehensive guide details all essential VAT implications when coming to the residential real estate sector in the UAE. Acknowledging a highly detailed overview of the UAE VAT laws & rates and understanding how they apply specifically when coming to the residential real estate sector.
UAE VAT Law & Rates
The UAE VAT law rates when coming to residential real estates are solely based on the property type and the time of supply.
The standard VAT rate of 5% applies universally to the sale of all newly constructed properties that are sold prior to their first occupation.
This rate is also equally applicable to the sale of any piece of land and commercial properties.
However, the resale of residential properties that have already been preoccupied or pre- used are deemed exempted from VAT. Additionally, any lease or rental of residential properties is also equally deemed exempted from VAT.
Furthermore, any additional services related to the sale or lease of residential properties such as real estate agent fees, property management fees, and maintenance services are also deemed to be exempted from VAT.
VAT Implications for the Residential Real Estate Sector
So, I you’re a property developer, you must be mandatorily registered for VAT if your annual taxable supplies exceed AED 375,000.
Requiring you to charge VAT at the standard rate of 5% on the sale of all newly constructed residential properties that are being marketed and sold as brand new i.e. prior to their first occupation.
Alternately, if you’re a property owner or a landlord, you don’t need to register for VAT unless your annual taxable supplies exceed the same threshold of AED 375,000.
However, if you’re a real estate agent, you are not mandated to register for VAT unless your annual taxable supplies exceed the similar threshold of AED 375,000.
Although you should be still charging VAT at the standard rate of 5% on any additional commission or extra fees earned from the sale or lease of any such residential properties.
How to Calculate VAT
To accurately calculate the applicable VAT on residential properties, the net selling price of the property is taken into account. And this refers to the price of the property before VAT is added. Then, one can easily calculate the applicable VAT by multiplying the net selling price by the current VAT rate of 5%. And the resultant amount will be the total VAT payable.
For instance, if selling a residential property for AED 1,000,000, the net selling price would be AED 952,381.
The VAT payable would be AED 47,619, which is further calculated by multiplying the net selling price by 5%.
Precisely, it’s important to gauge and fully understand the application VAT implications specifically coming to the residential real estate sector across the UAE. The average standard VAT rate of 5% applies to the sale of all newly constructed properties that are being sold prior to their first occupation, Including the sale of both land and commercial properties.
However, coming to the sale of residential properties that have already been occupied or used are deemed exempted from VAT, including all leased or rented residential properties.
So if you’re a property developer, property owner, landlord, or a real estate agent, it is extremely important to understand your invaluable VAT obligations and accurately calculate your incurring VAT amounts especially when coming to your residential properties or land.
As a better alternative, we suggest hiring an expert professional vat consultant for all your tax needs. By doing so, you can easily assure a complete compliance within the UAE mandated VAT law and avoid any unwanted penalizations or fines later on.