VAT on Real Estate Sector in UAE: VAT in UAE

VAT on Real Estate Sector in UAE: The implementation of VAT in UAE will effect on real estate development, sales, purchase and leasing of property and also on construction in a different manner and probably highly complex.

VAT on sale of commercial / residential properties

According to the UAE government the sale or lease of residential properties are exempt from VAT, however the sale of commercial properties will attract VAT.

VAT on leasing of commercial / residential properties

As per the government norms VAT will not be imposed on leasing of residential properties though the VAT is applicable on commercial leases.

This will make landlords to pass the VAT on to renters which will result in the increase in rental cost.

VAT on real estate broker commissions

The real estate brokerage services are expected to be at standard VAT. What matters is how the commission, which is generally shared with an individual agent, will be affected. In some cases the commission from sales is distributed among the individual agents, will influence on the cash flow of the business. The VAT is applicable to the shared commissions as in whole or makes administrative changes not to provide for VAT and submission but also how commission is shared.

VAT on the construction industry

In the construction sector most of the contracts are for a number of years and the signed contracts may not have prepared in the premises of VAT, which will raise an avoidable question who has to bear the VAT. There is possibility that the UAE government will allow the previously signed contracts to move forward. The other problem is the main contractors are doubtful in recovering the cost they experienced because of the sub-contractors who are below minimal annual income for VAT registration. Hence the main contactors need to restructure to provide non-recoverable VAT cost or the sub-contractors need to temporarily register for VAT to become commercially competitive.

VAT for real estate developers

The impact of VAT will be different for the developed commercial property, residential property and the sale of undeveloped property. The bare land is exempt of VAT. Real estate developers keep in mind the difficulties arising due to the mixed development of commercial and residential leasing.

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