VAT on Real Estate in UAE

Recent UAE data shows real estate-related activity accounts for almost one tenth of real non-oil GDP and roughly one seventh of bank loans.

Since 2018, standard VAT at 5 percent has applied on most supplies in the country, including a large part of the property sector. 

So even small mistakes on contracts or invoices can create big VAT bills or lost refunds. The VAT treatment depends on building type, timing of supply and later use. This article explains how Vat in Dubai and across the UAE works for sales, leases and related real estate services.

Core VAT Rules For UAE Real Estate

UAE VAT law treats real estate as any land, building or unit fixed in place. VAT looks at the nature of the property and the kind of supply, not just legal titles.

Supplies of commercial real estate are generally taxable at 5 percent, while many residential deals are either zero rated or exempt. 

Zero-rated supplies stay taxable but at 0 percent, so input VAT is still recoverable. Exempt supplies sit outside taxation and normally block input recovery. 

Residential Buildings – Zero Rated First Supply, Later Exempt

For residential buildings, the first sale or first lease within three years after completion is zero rated when conditions in Article 45 apply. Developers can recover input VAT on construction and related costs, yet charge 0 percent on that first supply.

Later sales and leases of the same building are exempt. Landlords then stop charging VAT on rent or sale price and cannot claim VAT on ongoing maintenance costs that link directly to exempt units.

 Mixed portfolios need careful allocation between taxable and exempt parts to avoid over-claims. 

Commercial Property – Offices, Retail And Warehouses

Commercial real estate includes offices, malls, warehouses and many serviced apartment models used as hotels. Sales and leases of such property are normally standard rated at 5 percent. The supplier issues a tax invoice, charges VAT and reports it as output tax.

Where the tenant or buyer is a VAT-registered business using the space for taxable activity, input VAT on rent or purchase price is usually recoverable. This shapes rent negotiations and pricing models, especially for long leases with fit-out contributions or break clauses.

Bare Land, Charitable Buildings And Special Cases

Supplies of bare land are generally exempt. The definition covers plots with no completed buildings and no civil engineering works such as roads or power lines.  Once development starts, the VAT status can change.

Buildings designed as charitable premises may qualify for zero rating in certain cases, provided conditions around approved charities and intended use hold. 

Musataha agreements, long leases and similar land rights can attract complex VAT outcomes. So contracts should mirror the Real Estate VAT Guide’s examples as closely as possible. 

Mixed-Use Projects And Change Of Use

Many towers mix residential units with retail or offices. In such cases the developer must treat each part separately as far as possible, applying zero rating for first residential supplies and 5 percent for commercial parts.  

Change-of-use rules then apply across an adjustment period, often stretching up to ten years for capital items.  If a floor moves out of commercial use into residential letting, earlier input tax claims may need partial reversal. The opposite shift can unlock extra recoverable VAT.

VAT On Real Estate Commission In UAE

Real estate brokerage services, valuation fees and property management for commercial property are usually standard rated at 5 percent. The same often applies to agency work on new residential projects, even if the underlying sale is zero rated or exempt.

For VAT on real estate commission in UAE, the key question is the nature of the service, not the buyer’s status. If the broker supplies a service for consideration, VAT is likely due unless a clear exemption applies.

UAE VAT On Real Estate: Common Pitfalls

Several patterns repeat across audits and reviews:

• Treating later sales of residential units as zero rated even after the three-year window has passed.  
• Claiming full input VAT on mixed-use developments without proper allocation between residential and commercial parts.  
• Ignoring change-of-use adjustments when staff housing or serviced apartments change role over time.  
• Misclassifying bare land as taxable and collecting VAT unnecessarily on plot sales.  

Contracts, Documentation And Practical Control Points

Clear evidence makes VAT positions defensible. Helpful habits include:

• Stating building type, intended use and completion date in sale and lease contracts.  
• Keeping completion certificates, handover letters and occupancy permits inside the tax file.
• Recording any later change of use, with dates and board approvals.  
• Storing allocation workings that show how costs split between residential and commercial elements.

These steps help explain why a supply is zero rated, taxable or exempt when the Federal Tax Authority asks for support.  

Arnifi’s Role In Real Estate VAT Planning

Real estate groups now juggle VAT, Corporate Tax and economic-substance rules at the same time. Arnifi works with developers, landlords and family investment vehicles that want easy, consistent handling of UAE VAT on real estate issues.

Typical work includes mapping each asset to the right VAT profile and testing historical recovery methods. Teams then link project codes to VAT classifications inside accounting systems. Arnifi also reviews agency agreements and sales packs so that VAT on real estate Dubai contracts support the intended tax treatment instead of creating gaps.

Compliance Checklist For Property Businesses

Before each VAT period closes, real estate businesses can run a short checklist:

• Scan sales and lease deals for the period and confirm status as taxable, zero rated or exempt.
• Review capital expenditure for new projects and confirm that input VAT links to taxable activity.
• Check for any change of use that might trigger capital-item adjustments.
• Ensure broker invoices, service charges and maintenance costs carry correct VAT and supplier details.

Working With Specialists On Real Estate VAT

VAT for property sits at the intersection of law, planning approvals and long project timelines. Missteps can wipe out margins or turn expected refunds into extra cost. Arnifi supports boards and finance leads by turning the Real Estate VAT Guide into a practical map tied to lease schedules and project models.

With clear rules wired into documents and systems, VAT on real estate becomes part of routine closing rather than a last-minute scramble before an FTA review or asset sale.

FAQs

Is VAT always charged on property sales in the UAE?

No. First supply of new residential buildings often qualifies for zero rating. Later residential deals are exempt, while most commercial sales attract standard 5 percent VAT. 

How is VAT treated on residential rent in Dubai?

Rent on long-term residential leases is usually exempt. Landlords then do not charge VAT and generally cannot claim VAT on direct costs for those units.

What VAT applies to office or shop leases?

Leases of offices or retail units are normally standard rated at 5 percent. Business tenants can often recover VAT, provided activity stays taxable or zero rated rather than exempt. 

Are land sales always exempt under UAE VAT?

Sales of bare land without development are generally exempt. Once significant infrastructure or buildings exist, later supplies usually follow commercial or residential rules instead of the land exemption. 

When should a developer adjust input VAT for change of use?

Adjustments arise when a building’s use shifts between taxable and exempt categories within the capital-item adjustment period. Developers must recalculate recoverable VAT for the remaining years in that window.