When value-added tax (VAT) was introduced in the UAE and Saudi Arabia on January 1, 2018, initially stakeholders were wary on the potential impact of the new tax policy on the economy.

A study conducted by Alliance Business Centers Network said that the UAE would be least affected by the imposition of VAT because it is one of the lowest globally compared to countries such as the UK, Switzerland, Germany, Mexico, South Africa and Australia. The study revealed that the VAT in UK and France was 20 percent, which is substantially higher than the five percent implemented in the UAE and Saudi Arabia.

With the adoption of VAT in the real estate sector, investors and stakeholders are weighing the impact on market valuations. According to Deloitte, in the UAE, commercial property is clustered in the taxable bracket and therefore the costs of buying or leasing such property are likely to increase.

Moreover, stakeholders in the UAE real estate sector see the pricing of ancillary services such as brokerage, maintenance services, car parking, facility management and property management increase as such services will be subject to VAT and do not fall within the exemption for rental of residential real estate, even where provided in connection with a residential contract.