Navigating the Value Added Tax (VAT) landscape in the UAE can be daunting, especially when it comes to commercial property rent. Since its implementation on January 1, 2018, at a standard rate of 5%, VAT has significantly impacted various sectors, with real estate being one of the most affected. This guide aims to simplify VAT’s application to commercial property rent in the UAE and provide a comprehensive understanding of its implications.
The Basics of VAT in the UAE
Value Added Tax (VAT) is an indirect tax levied on the consumption of goods and services. In the UAE, businesses are responsible for collecting VAT and remitting it to the Federal Tax Authority (FTA). The standard VAT rate is 5%, with some exceptions for certain goods and services.
VAT Registration: Who Needs to Register?
Businesses must register for VAT if their taxable supplies and imports exceed AED 375,000 over the past 12 months or are expected to exceed this threshold in the next 30 days. For those who don’t meet this criterion but have taxable supplies and imports, or expenses exceeding AED 187,500, voluntary registration is possible.
| Criteria | Threshold |
|---|---|
| Mandatory Registration | AED 375,000 |
| Voluntary Registration | AED 187,500 |
VAT Implications on Commercial Property
Definition of Commercial Property
Commercial property includes offices, retail stores, hotels, warehouses, factories, and any land used for commercial purposes. It excludes residential buildings, properties intended for charitable activities, and undeveloped land.
VAT on Sale and Lease of Commercial Property
In the UAE, the sale or lease of commercial real estate is subject to the standard VAT rate of 5%. Suppliers must charge VAT on the total amount received, including any installments and have the opportunity to recover VAT paid on associated costs.
Special VAT Procedures for Commercial Real Estate
Certain transactions involving commercial real estate have a special VAT payment process, such as non-developer sales. In these cases, the buyer must pay VAT directly to the FTA before finalizing ownership transfer with the Land Department.