FTA Clarifies VAT Obligations of Real Estate Management Entities in Dubai
In a significant update on VAT in the UAE, the Federal Tax Authority (FTA) has issued a public clarification on the VAT obligations of Real Estate Management Entities, which has cleared major tax uncertainties in the real estate industry. As per the new guidance, the Management entities are required to register for VAT. This marks a major shift in VAT obligation from Dubai Owner’s Associations to the management entities.
Management entities, therefore, must be prepared to ensure compliance with the UAE VAT regulations or else hefty penalties will be imposed. The entities need not be worried about the penalties provided they are availing the assistance of registered VAT consultancy firms in Dubai, UAE. Here is everything you need to know about the VAT obligations of Management Entities in the UAE.
What’s the Crux of the Issue?
Law No. 6 of 2019 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai (“Law No. 6”) forms the core of the public clarification issued by the FTA. As per the Law, Dubai Owner’s Associations are no longer considered as making taxable supplies, and therefore they are not required to register for VAT. Following the issuance of the Law, Dubai Owner’s Associations are required to perform VAT deregistration in Dubai, UAE.
However, the FTA realised that numerous Owners Associations are yet to deregister for VAT. Therefore, the VAT Guidance was issued, which emphasised that the responsibility of the VAT registration should now fall on the Management Entities. All rights and obligations of Dubai Owners’ Associations were transferred to Management Entities.
As per the VAT Public clarification VATP022, a Management Entity can be developers, management companies, or hotel project management companies as the case may be. As per the FTA, the Management Entity controls the management of common facilities, Jointly Owned Real Property, or common parts. Management Entities, therefore, must register and account for VAT in UAE. The assistance of VAT consultancy firms in Dubai may come in handy for the Management Entities in ensuring compliance with FTA regulations.
Management Entities must Account for VAT
The FTA considers Management Entities as the person supplying goods and services to the owners of the units. Further, the Management Entity is not considered as an agent who is just managing the building on behalf of the owners of the units. A unit can be a flat, shop, office, warehouse, floor, whole or part of a land plot, townhouse, or independent house that constitutes part of Jointly Owned Real Property and is intended for residential, commercial, industrial, or any other use. The act of managing the Jointly Owned Real Property is considered as a taxable supply of services that is subject to 5% VAT.
The Requirement to Issue Tax Invoices
Management Entities that make taxable supplies must issue valid tax invoices to the recipients of the supplies. VAT registrants who make taxable supplies are required to issue invoices as per Article 65(1) of the VAT Decree-Law. Failing to issue valid tax invoices or tax credit notes would lead to administrative penalties. As per Table 3 of the Cabinet Resolution, the entities would incur a penalty of AED 5,000 per document for failing to issue valid tax invoices and tax credit notes. Tax agents in Dubai, UAE, can help the Management Entities by reviewing the format and content of the tax invoices and tax credit notes issued.
VAT Return Filing for Management Entities
While filing VAT returns in the UAE, the Management Entities must report the amounts received (such as service charges) and the related VAT amount in Box 1b of the VAT return. As per Article 54(1)(a) of the Decree-Law, Management Entities are entitled to recover VAT paid in respect of goods and services availed to manage the Jointly Owned Real Property.
The Entities must be vigilant enough to avoid incorrect tax returns as such violations of the law would lead to penalties. As per Table 1 of the Appendix to Cabinet Resolution, two penalties apply in this case:
- The fixed penalty of AED 3,000 for the first time and AED 5,000 in the case of repetition
- A percentage-based penalty if the Management Entity enjoyed a tax benefit as a result of submitting an incorrect return
How Can VAT Consultancy Firms in Dubai Help Management Entities?
As per the Public Clarification issued by the FTA, Real Estate Management Entities must register for VAT as Dubai Owners Associations are no longer considered as making taxable supplies. Management Entities must issue invoices and file VAT Returns as per the VAT regulations in the UAE. Non-compliance attracts hefty penalties, but the best VAT consultancy firms in Dubai, such as Jitendra Chartered Accountants (JCA) ensure that the entities are complying with the VAT regulations. JCA helps the management entities with services such as VAT registration, VAT consultation, VAT Return filing etc. JCA has highly qualified tax agents in Dubai who will ensure that the taxable entities are not subjected to hefty penalties. With JCA, the taxpayers can run their business without bothering about legal hassles.