In the UAE, value-added tax (VAT) is levied on most goods and services, including real estate. VAT on residential real estate has been a topic of discussion since its introduction in the UAE in 2018.
In this article, we will explore everything you need to know about VAT on residential real estate in the UAE.
Overview of VAT on Residential Real Estate in the UAE:
The VAT rate applicable to residential real estate is 5%, and it is applicable to the sale and lease of residential properties.
However, there are certain exemptions and special cases that need to be considered. The Federal Tax Authority (FTA) has issued guidance on how VAT is applied to residential real estate transactions in the UAE.
Exemptions and Special Cases:
Some residential real estate transactions are exempt from VAT, including the sale and lease of commercial properties, residential properties that are used for charitable purposes, and residential properties that are sold or leased as part of a business.
There are also special cases to consider, such as the VAT treatment of off-plan sales, sales of properties by non-residents, and sales of partially completed properties.
VAT on Sale of Residential Real Estate:
The sale of residential real estate is subject to VAT at a rate of 5%, and the seller is responsible for paying the tax. However, if the seller is a non-resident, the buyer is responsible for paying the VAT.
The seller must register for VAT if their taxable supplies exceed AED 375,000 per annum. It is also important to note that if the sale of residential real estate is subject to VAT, the buyer may not be eligible for a mortgage from some banks.
VAT on Lease of Residential Real Estate:
The lease of residential real estate is also subject to VAT at a rate of 5%. The landlord is responsible for paying the tax, and they must register for VAT if their taxable supplies exceed AED 375,000 per annum.
Tenants may be exempt from paying VAT if they are not registered for VAT themselves, and the landlord is not required to charge VAT if the tenant is exempt.
In conclusion, VAT on residential real estate in the UAE is subject to a 5% tax rate, and there are exemptions and special cases to consider. It is important for both buyers and sellers to understand their responsibilities when it comes to VAT on residential real estate transactions.
By following the guidance provided by the FTA, individuals and businesses can ensure that they are complying with the regulations and avoiding any potential penalties or fines.
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