Guide to VAT Implications on the Residential Real Estate Sector in the UAE

Buying or renting a home in the UAE already involves major financial decisions. But many people still get confused about how Value Added Tax (VAT) affects residential properties. The confusion can lead to extra costs, compliance issues, or missed tax benefits.

This guide explains how VAT applies to residential properties in the UAE, when it is exempt, zero-rated, or taxable, and what property owners need to know to stay compliant.

You can get additional tax guidance and support at Jitendra Chartered Accountants (JCA) from professional VAT agents in the UAE.

VAT in the Real Estate Sector: An Overview

The UAE introduced VAT at a standard rate of 5% in 2018. The VAT rules for residential and commercial properties differ.

The Federal Tax Authority (FTA) classifies property supplies into three main categories:

• Exempt supplies
• Zero-rated supplies
• Standard-rated supplies (5%)

Residential properties mostly fall under exempt or zero-rated categories, while commercial properties are usually standard-rated.

What Counts as a Residential Property for VAT UAE?

Under the UAE VAT law, a residential property is any building constructed for people to live in.

It includes:

• Apartments, villas, and houses used as primary homes
• Student housing
• Orphanages
• Nursing or care homes
• Farmhouses on agricultural land

Even if a small part of a home is used as an office or workspace, the FTA still considers it residential, as long as the main purpose is living. This is important today when many people work from home. Get more information on this from our VAT agents in Dubai.

VAT on Residential Properties: First Supply vs. Subsequent Supplies

The first supply of a newly built residential property is zero-rated under UAE VAT rules. This means:

• The sale or lease of a new property within three years of its completion is charged at 0% VAT.
• Developers can recover VAT they paid on construction and related expenses.

After the first supply, any later sales or leases of that same property are exempt from VAT. This exemption helps keep residential housing affordable for residents and investors.

 VAT on Service Charges and Maintenance Fees

Residential buildings often have service charges collected by owner associations or property managers.

• Security and cleaning of shared areas
• Landscaping
• Common area maintenance

These services are subject to 5% VAT because they are treated as separate taxable supplies. Even if the building itself is exempt, the related maintenance or management services attract VAT. Homeowners and tenants should check if their contracts mention VAT on such charges to avoid confusion later. Seek guidance from VAT agents in Dubai in this regard.

VAT on Labour Camps: Are They Residential Buildings?

Labour camps are common in the UAE, especially in industries that house workers.

The VAT treatment depends on the nature of the accommodation.

A labour camp qualifies as a residential building if:

• It serves as the employee’s main place of residence
• It’s fixed to the ground and can’t be moved without damage
• It follows local construction and safety regulations
• It doesn’t operate like a hotel or serviced apartment offering extra paid services

If these conditions are met, the camp is treated as residential and the supply is either zero-rated (for the first supply) or exempt (for later transactions). Otherwise, it may be considered commercial, attracting 5% VAT.

VAT on Mixed-Use Properties

Some buildings combine residential and commercial spaces, like apartments above retail stores.

These are called mixed-use properties, and their VAT treatment depends on the proportion of use:

• The commercial part (shops, offices) is taxable at 5%
• The residential partis exempt

Developers must carefully allocate VAT between both portions and maintain accurate records to ensure correct reporting. Know how this works from our expert VAT agents in the UAE.

VAT on Land Sales

The VAT treatment of land also varies:

• Bare or vacant land is exempt from VAT.
• If the land is developed or intended for commercial use, it becomes taxable at 5%.

For developers, it’s essential to determine whether the land will be used for residential or commercial purposes before entering into transactions.

Property-Related Services Subject to VAT

Apart from the sale or lease of properties, many related services attract VAT at 5%.

These include:

• Real estate agency commissions
• Property management services
• Security, cleaning, and facility management contracts
• Parking, utilities, and leasing services connected to commercial areas

Understanding which services are taxable helps owners and tenants avoid unexpected charges.

Place of Supply VAT Rules

For VAT purposes, the place of supply for real estate and related services is where the property is located.

This means if the property is in the UAE, UAE VAT applies, regardless of where the buyer or seller is based.

How can Jitendra Chartered Accountants help?

JCA helps learn how the rules apply to first sales, leases, services, and land, assisting property owners in avoiding errors and benefiting from tax recovery opportunities. For anyone buying, leasing, or developing residential property, our VAT agents in the UAE can provide complete tax guidance.