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Limited VAT impact on real estate sector
The Federal Tax Authority, FTA, and Dubai Land Department, DLD, have confirmed that the UAE’s recently introduced VAT will have a limited impact on the real estate sector.
FTA and DLD have stated that all real estate transactions, with the exception of the sale of vacant commercial properties and commercial property leases, will be either not subject to or exempt from the five percent VAT, while leased commercial property will not be considered a supply during their sale by the taxable person and will therefore not be taxable.
The components of the tax-exempt real estate sector include bare lands, provided that they are sold or leased when no building or engineering works are on such lands. Upon commencement of any real estate development work, tax will be applied.
Residential buildings are not taxable if sold or rented. These include apartments, buildings, residential villa complexes, housing for workers and students, accommodation for armed forces and police, and homes for the elderly, orphans and nursing homes. The law stipulates that the period of the lease shall be more than six months or to the holders of the identity card issued by the Federal Authority for Identity and Citizenship. However, this does not apply to buildings not fixed on lands, hotels and hotel apartments, or apartments offering services in addition to housing.