What is Value Added Tax (VAT) on real estate in Dubai?
Value Added Tax (VAT) on real estate, also known as Value Added Tax, has been introduced in the United Arab Emirates, including Dubai, since 1 January 2018. The current VAT rate is 5% and is levied on the sale of property, services and goods in Dubai. This tax has a significant impact on property buyers, investors and the property industry as a whole.
Why was Value Added Tax (VAT) introduced on real estate?
The introduction of VAT in Dubai was decided to increase government revenue and promote a more stable economy. The revenue from VAT is used to fund public services and infrastructure projects. As the property sector makes a significant contribution to the economy, taxing property is an important step in this direction.
What types of property are affected by VAT?
VAT applies to various types of property, including
- New property: the sale of newly built residential and commercial property is subject to VAT.
- Investment property: Rental properties that are sold, including flat and hotel complexes.
- Commercial property: Office buildings, retail premises and warehouses are also subject to VAT regulations.
Who is responsible for paying VAT?
In most cases, the seller of a property is responsible for collecting and paying VAT to the tax authorities. However, buyers should be aware that said VAT will be added to the total purchase price of the property. It is important to factor the tax costs into the overall budget for the property transaction.
How is VAT calculated on property in Dubai?
VAT is calculated on the purchase price of the property. For example, if a property is sold for AED 1 million, the VAT is 5% of AED 1 million, or AED 50,000. The buyer must therefore pay a total of AED 1,050,000.
Are there any exemptions from VAT on property?
In certain cases, there are exemptions from VAT on property:
- Second-hand property: the sale of second-hand property is exempt from VAT if the seller has not charged tax on the previous sale.
- Renting: Rental agreements for residential property are exempt from VAT if the rental price is below certain fixed amounts.
Illustrative example on the topic: VAT on property
Imagine Mr Müller wants to buy a flat in Dubai that is offered for AED 2 million. At the time of purchase, Mr Müller is informed that VAT of 5% will be added to the purchase price. The VAT on the flat is calculated as follows:
Actual purchase price: AED 2,000,000
Value added tax (5%): AED 100,000
Total amount to be paid: AED 2,100,000
Mr Müller should also find out about the incidental purchase costs to ensure that his budget remains realistic.
Conclusion
Value Added Tax (VAT) on property in Dubai is an important aspect for buyers and investors to consider when planning their property purchases. It is crucial to be aware of the current regulations and exemptions to ensure a smooth purchase transaction. Advice from a property agent or financial expert can also provide valuable support.
