A Comprehensive Guide To Vat On The Supply Of Commercial Properties In The UAE

Businesses carrying out real estate transactions in the UAE may often find the VAT considerations complex and tricky to navigate. The UAE VAT regime’s complexity owes to the sector’s complex supply chains, ownership and payment structures. However, a consultation with VAT consultants in Dubai can help businesses to ease their struggles with the tax regime in the country.

VAT on real estate covers various aspects including residential property, commercial property, mixed-use developments, bare land etc. In this article, we will provide you with valuable insights on what is meant by commercial property and the VAT on the supply of commercial property in the UAE. Read ahead to know further:

Commercial Property as per the UAE VAT Regime 

To understand the tax implications, businesses need to understand the definition of commercial property as per the regulations of VAT in the UAE. As per the latest VAT guide (VATGRE1) by the Federal Tax Authority (FTA), a commercial real estate property can be any building except the following:

  • Buildings designed as residential buildings
  • A building intended to be used by a charity for a relevant charitable activity
  • Bare land

VAT Liability on Commercial Properties 

The supply of commercial real estate properties in the UAE is subject to the standard rate of VAT at 5%. The supply of commercial real estate can be by way of a sale or a lease. Therefore, VAT will be due to the total consideration received by the supply of the commercial real estate property. If the consideration for the supply of commercial property is paid through instalment, VAT will be due on each instalment paid. Since the supply of commercial real estate is a taxable supply, VAT incurred on its supply can be recovered in full. Tax agents in Dubai can advise you on the VAT liability of commercial real estate.

Payment of VAT on Sales of Commercial Real Estate 

The supplier needs to collect the VAT and pay it to the FTA in the usual methods in the following those of commercial property:

  • Lease of commercial real estate property
  • Sale of a commercial property by its developer
  • A commercial property sale with the benefit of sitting tenants to a buyer who is a taxable person that qualifies as the transfer of a business

In all these situations, the supplier must collect the VAT, report and pay it to the FTA in the relevant VAT return. You can seek the help of tax agents in Dubai to make the tax payment and report it to the authority in the tax return.

Special VAT Payment Process for Commercial Real Estate Property 

A special payment process applies if the sale of a commercial property is made within the UAE. The special process must be undertaken only when the commercial property is sold in the UAE by any supplier other than the developer of that property, and would be subject to VAT at 5%.

In such a situation, the seller of the property is required to issue a tax invoice to the buyer related to the sale proceeds as usual. However, the buyer must pay the VAT due on the purchase directly to the FTA before finishing the ownership transfer procedure with the Land Department. Alternatively, they can pay the VAT via an FTA-nominated bank subject to availability in the specific Emirate. Once this is done, the following processes will ensue:

  1. The buyer will receive a Payment Transaction Number
  2. The buyer must retain the proof of payment containing the VAT payment details (only if VAT is paid through a bank)
  3. The buyer needs to produce the Payment Transaction Number or proof of payment (if applicable) to the Land Department for the ownership transfer
  4. The supplier must declare the output tax due on the property within its VAT return in the normal way

Cancelled Commercial Developments 

In certain cases, a supplier may accept full or partial payment for the supply of a property which may be cancelled subsequently. In such cases, the supplier will normally be required to refund the money paid to the customer. In this situation, the supplier needs to issue a tax credit note to the customer to refund the consideration previously paid about the supply.

Consult with the Best VAT Consultants in Dubai, UAE 

Businesses should identify the implications of the UAE VAT on the transactions of commercial real estate to ensure tax compliance. The best VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help the commercial real estate players to ensure compliance with the regulations without any hassle. JCA offers the best tax consultancy services in Dubai such as VAT registration, VAT return filing, VAT reconsideration, VAT de-registration etc. Consult with our tax agents in Dubai to ensure full compliance and to avoid last-minute surprises such as tax audits.