Many property owners and investors worry about how VAT will affect sales, leases, or construction projects. The rules are not the same for every type of property, which often creates stress for businesses and individuals. A deal that seems tax-free may actually be taxable. Input tax recovery might be lost if the right steps are not taken. However, by understanding how VAT applies to real estate, businesses can avoid risks and manage their tax in the right way.
Tax Gian helps businesses understand their tax liabilities comprehensively. Our VAT agents in the UAE enable them to comply properly and operate smoothly.
What Counts as Real Estate under UAE VAT?
For VAT purposes, real estate includes:
- Any land or property.
- Buildings, structures, or engineering works.
- Fixtures or equipment permanently attached to the property.
When real estate is supplied through sale or lease, it is treated as a supply of goods. This means that VAT rules for goods apply, including:
- Place of supply: Where the property is located.
- Time of supply: The earlier of when payment is received or when the tax invoice is issued.
Seek expert guidance from VAT agents in the UAE if things confuse you.
Residential Buildings
Residential buildings are mainly exempt from VAT. They cover homes, student housing, military housing, orphanages, and nursing homes. Small workspaces within the home are also allowed.
But there are key exceptions:
- The first sale or lease of a new residential building within three years of completion is zero-rated.
- The first supply of a newly converted building into residential use can also be zero-rated if conditions are met.
- Short-term leases (less than six months) are standard-rated unless the tenant has an Emirates ID.
Example cases:
- First sale of an apartment two years after construction → Zero-rated.
- Lease of an apartment for five months to a tourist → Standard-rated.
- Second sale of the same apartment after four years → Exempt.
Conversions of Residential Buildings
When a commercial property is converted into a residence, the first supply may qualify for zero-rating. But this only applies if:
- The supply happens within three years of the conversion.
- The property was not used as a home within the last five years.
If these conditions are not met, the supply is exempt.
Commercial Buildings
Any property not classified as residential is treated as commercial. Examples include:
- Offices
- Shops
- Hotels
- Warehouses
All sales and leases of commercial property are subject to VAT at the standard rate of 5%.
There is one exception: if the building is specifically designed for use by a registered charity, and is only used for charitable purposes, then the supply may be zero-rated.
Still confused? Get clearer insights from VAT agents in Dubai.
Mixed-Use Buildings
Some properties have both residential and commercial parts. In such cases, each part is treated separately for VAT:
- The residential part can be exempt or zero-rated.
- The commercial part is standard-rated at 5%.
Input tax recovery in these cases depends on the split:
- Costs related to taxable supplies can be recovered.
- Costs linked to exempt supplies cannot be recovered.
- Shared costs must be apportioned according to rules set by the tax authority.
Bare Land
“Bare land” means land with no buildings, structures, or engineering works. The supply of bare land, whether through sale or lease, is exempt from VAT.
However, the moment construction begins and the land becomes “covered,” it is no longer exempt. From that stage, the supply is standard-rated.
Supplies between Landlords and Tenants
In real estate, contracts often include incentives, discounts, or rent-free periods. Their VAT treatment depends on whether anything of value is provided in return.
- Incentives: If a landlord pays a tenant to sign a lease, the tenant is seen as providing a service. If VAT is registered, they must charge VAT at 5%.
- Rent-free periods: If granted with no obligations, it is not a supply and no VAT applies. But if the tenant must perform a service in exchange (like property repairs), then VAT applies as a barter transaction.
Need more details? Get help from VAT agents in Dubai.
VAT Refund for UAE Nationals Building Homes
A UAE national who builds a personal home on their own land can claim a refund of VAT paid on construction costs. To qualify:
- The claim must be for a new home.
- The property must be used only as a residence.
- The claim must be made within six months of completion.
Refunds can cover VAT on materials, architect fees, and construction services. Furniture and appliances are excluded.
How can Tax Gian help?
VAT in the UAE real estate sector is not simple. The treatment depends on whether the property is residential, commercial, mixed-use, or bare land. Each category has its own rules on zero-rating, exemption, or standard rating. Tax Gian helps businesses know what rules apply to them and how they can comply fully. Our expert VAT agents in the UAE help businesses understand taxation properly and act accordingly.
