Understanding VAT on Commercial Property in the UAE: Rules and Rates

Business owners and investors operating in UAE’s real estate market must be familiar with VAT on commercial property in UAE. The introduction of VAT in the UAE has brought significant changes in commercial property dealings. The sale and lease of commercial properties are now subject to VAT. However, it revolves around various factors such as the type of property, intended use, and timing of the transaction.

This article will explain the implications of VAT on sale of commercial property UAE, the registration process, and the responsibilities of property owners.

VAT Registration in the UAE

Value Added Tax or VAT, introduced in 2018 in the UAE, is an indirect tax levied on the consumption of goods and services. The registered business collects VAT from the end consumers and remits it to the Federal Tax Authority (FTA), the regulatory body overseeing taxation in the UAE.

Every business operating in the UAE is required to register for VAT with the FTA. This formal process authorizes the business to administer VAT collection and payment to the government. The standard VAT rate imposed in the UAE is 5% for most supplies, along with certain exempt and zero-rated supplies.

The VAT law in the UAE categorizes VAT registration into two different types. The law states that every business that meets the defined criteria is required to register for VAT with the FTA:

• Mandatory Registration: Businesses with taxable supplies and imports surpassing AED 375,000 over the preceding 12 months or anticipate exceeding this threshold in the next 30 days must register for VAT with the FTA.
• Voluntary Registration: Businesses that do not meet the mandatory criteria but have taxable supplies and imports exceeding AED 187,500 over the past 12 months or are expected to surpass this amount within the next 30 days can opt to register voluntarily.

Commercial property: Definition

Commercial property refers to any building or property that is not intended for residential use. The below list outlines the types of properties commonly considered commercial in the UAE:-

• Office Spaces: Buildings or spaces used for office purposes
• Retail Spaces: Shops, malls, showrooms, retail outlets, and other properties used for retail business
• Warehouses: Large spaces used for storage or manufacturing purposes
• Hotels and Resorts: Properties used to provide accommodations, dining, and leisure activities to guests
• Restaurants and Cafes: Spaces designed for dining businesses
• Commercial Villas: Properties used for business purposes
• Industrial Properties: Spaces used for manufacturing or heavy industrial activities
• Healthcare Facilities: Properties used for medical purposes
• Educational Buildings: Properties used for educational purposes
• Mixed-Use Developments: Properties combining two or more uses in one location

While residential properties are typically VAT-exempt or zero-rated, the sale and lease of commercial properties are subject to VAT in the UAE. This makes it crucial for property owners as well as tenants to understand their obligations pertaining to VAT on commercial property in UAE.

VAT on commercial property in UAE

The supply of commercial properties in the UAE is subject to the standard VAT rate of 5%. The supplier applies VAT to the total amount received for the sale, including installments. Additionally, they can also recover any VAT paid on expenses related to the supply.

Businesses need to understand VAT on commercial property transactions to ensure compliance and avoid unforeseen expenditures. The VAT-applicable transactions on commercial property in the UAE include the following:-

• Sale and lease – Selling or leasing of commercial property is subject to a 5% VAT.
• Related services – Maintenance, utility charges, and real estate agent fees related to commercial properties are also subject to VAT at a standard rate of 5%.
• Development and construction – A standard rate of 5% applies to the development and construction of commercial properties in the UAE.

While leasing a commercial property in the UAE, the tenant is required to pay 5% VAT on top of the rent.

Cancellation of supply of commercial property in the UAE

In case, a supply of commercial property is canceled, the supplier will have to refund the payments made by the customer for the supply, along with a tax credit note canceling out the previously reported output tax.

However, if the supplier retains the payment made by the customer, then they must state the reason for it, along with appropriate VAT treatment on the amount.

Payment of VAT on commercial property in UAE: Online Procedure

This is how eligible entities can pay VAT on commercial property through the FTA portal:-

Create an e-service account – Access the FTA portal to create an e-services account. All you need to do is enter your email address with a unique password to register as a new user.

Log in to the portal – Once your account is successfully created, start the process of VAT payment on commercial property. Locate the ‘My Payments’ tab and select the ‘Miscellaneous Payment’ section. Among the different options that appear on the screen, select ‘Commercial property sale’ from the ‘Payment for’ list.

Enter required details – Under the ‘Miscellaneous payment’ box, enter the VAT amount, Seller’s TRN, Commercial property number, Date of Sale, and the relevant department. Next, go to the ‘Make Payment’ button.

Complete the VAT payment – Once the ‘Payment Information’ screen appears, click the ‘Pay Now’ button. Choose either an e-Dirham or a non-e-Dirham card to make the payment. After completing the payment, collect the transaction number automatically generated by the system.

VAT payment procedure for the purchase of commercial property

The VAT payment process for the purchase of commercial property is specific in the UAE. If the property is sold by a supplier other than the developer, the buyer is required to pay the VAT directly to the tax authorities before completing the ownership transfer.

The steps for VAT payment on commercial properties include –

• The buyer pays 5% VAT to the authorities.
• Upon payment, the FTA issues a Payment Transaction Number as proof.
• The buyer then submits this number to the Land Department of the respective Emirate to complete the transfer.

Deregistration of VAT on commercial property in UAE

The VAT deregistration process allows companies to cancel their registration with the FTA if they no longer fulfill the registration criteria. For instance,

• If the annual taxable supplies or expenses of the business fall below AED 187,500.
• If the business terminates taxable activities.

Businesses must ensure to apply for deregistration within 20 business days from the qualifying date to avoid any legal consequences. Before that, they must ensure to settle all tax dues and returns.

Responsibilities of commercial property owners/tenants

Individuals owning or renting a commercial property are required to fulfill specific responsibilities under UAE VAT law:

• If the annual taxable supplies exceed AED 375,000, the owners of the commercial properties must register with the FTA.
• They must maintain all transaction documents for at least five years.
• The owners of non-residential properties must regularly file tax returns and settle all VAT dues.

Get help from Shuraa Tax Consultants and Accountants, UAE

Navigating the regulations and procedures of VAT on commercial property in UAE can be complex. With Shuraa Tax, you can gain valuable insights and expertise to streamline compliance. They have an experienced team of tax professionals who assist businesses with VAT registration, compliance, and deregistration and safeguard them from potential penalties.

Contact Shuraa Tax today for more information on VAT on sale of commercial property UAE: [email protected]