VAT in UAE: A Key Changer Guide for Real Estate

Value Added Tax (VAT) is an indirect tax levied on most goods and services. In the UAE, VAT is set at a standard rate of 5%, making it one of the most competitive tax rates globally. However, when it comes to real estate, the rules for VAT application vary depending on the nature of the property and the transaction.

Types of Real Estate Transactions and VAT Applicability

Real estate transactions can broadly be categorized into residential and commercial properties, each with distinct VAT treatments:

1. 1- Residential Properties:

   • First Supply of New Residential Buildings: The first sale or lease of a new residential building is zero-rated for VAT purposes, provided the supply occurs within three years of the building’s completion.
   • Subsequent Supplies: Any subsequent sale or lease of residential property is exempt from VAT.
   • Long-Term Residential Leases: These are also VAT-exempt, protecting tenants from additional costs.

2. 2- Commercial Properties:

   • Sale or Lease of Commercial Properties: All sales or leases of commercial properties are subject to a 5% VAT rate, which must be paid by the buyer or lessee.
   • Mixed-Use Properties: For properties with both residential and commercial components, VAT is applied proportionately based on the usage.

3. 3- Bare Land and Development Land:

   • Bare Land: The supply of bare land is exempt from VAT.
   • Development Land: Land designated for development is subject to 5% VAT.

4. 4- Charitable and Government-Owned Properties:

   • Supplies of property for charitable purposes or certain government activities may be exempt or zero-rated, depending on specific conditions.