VAT on Commercial Property in the UAE

VAT on commercial property in UAE stays at the centre of many sale and lease deals. Since VAT arrived in 2018, standard rated supplies have been the default for offices, warehouses and shops. 

As at 2025, the core approach still expects clear VAT treatment on rent, sale, fit-out contributions and service charges so that prices make sense for both sides of a deal and tax risk stays low.

Let’s know everything about VAT on commercial property in the UAE in this detailed guide.

How VAT Treats Commercial Property in the UAE?

For most commercial buildings the default VAT rate is 5 percent on both selling and letting. However, bare land is exempt and not treated as commercial property for VAT.

Where a transaction qualifies as a transfer of a business as a going concern (TOGC), it is treated as out of scope, so no VAT is charged on the property element.

For fully taxable landlords or tenants, input VAT on construction, fit out and operating costs related to commercial space is normally recoverable, although mixed-use buildings require input tax apportionment between taxable and exempt use.

Overview of Rent, Service Charges and Subletting

Leasing often creates more VAT questions than sales because many parts sit in one contract. For most leases, VAT on commercial property rent in UAE is charged at five percent on rent and on mandatory service charges such as common area fees. Rent free months or turnover rent stay inside that taxable value, so accounts must spread or adjust amounts. 

Subleases often matter too. When a tenant sublets space, it makes its own taxable supply and must issue tax invoices instead of forwarding the landlord’s bill. VAT on subletting commercial property in freezones UAE follows federal VAT law, but the exact treatment depends on how the lease and licence terms allocate control over space, utilities and shared services between parties. 

The key test is who legally supplies the real estate. At this stage of confusion, landlords and corporate tenants hire Arnifi’s accounting and bookkeeping services to map leases and design simple VAT flow charts.

Sale of Commercial Property and Transfer of a Going Concern

VAT on commercial property sale in UAE covers several scenarios, each with different outcomes.

Sale of a vacant office or shop

In most cases this is a straightforward taxable supply at 5 percent on the sale price. The buyer may recover input VAT if it is registered and uses the property for taxable business activity.

Sale with an existing tenant in place 

Here, the parties need to test if the deal qualifies as a transfer of a going concern. Key points include whether an identified business is transferred and whether the buyer will continue that business. If the test is met and conditions are satisfied, the transfer can sit outside the scope of VAT. If not, standard VAT applies.

Portfolio and share deals

Sometimes parties use share transfers in a property holding company instead of direct asset sale. The legal form then moves into the area of exempt financial services rather than real estate supply. VAT on professional fees and transaction costs can become partly blocked in such cases.

Common Practical Issues With Commercial Property VAT

Although the law sets a clear standard rate, sometimes day-to-day practice includes repeated problems under VAT on commercial property rules. The most common ones includes:

• Misalignment between leases and tax invoices, where the landlord bills inclusive rent for several years while VAT clauses are vague.
• Deposits and key money that never appear on VAT invoices, which later creates gaps in tax audits.
• Fit out contributions where the landlord funds works and recovers the cost through rent, but still needs to treat the contribution as a separate supply.

Many of these issues arise because legal and finance teams do not share draft documents early. A short VAT review when heads of terms are prepared is usually cheaper than rewriting signed contracts later.

For example, Arnifi’s professional accounting and bookkeeping team often enters transactions at this stage as an independent UAE tax adviser. After that, we review heads of terms, test VAT impact for each option and suggest simple wording for contracts so that both landlords and tenants read the same tax story.

Free Zones, Mixed Use Buildings and Adjustment Rules

Free zone commercial real estate often carries extra layers of detail. Some designated zones have special customs rules on import and export of goods, yet VAT on real estate in those zones usually stays standard rated. Therefore, assuming every free zone supply is automatically zero rated can create big errors. 

Mixed-use towers, where retail sits on lower floors and apartments above, need careful splitting of service charges and common area costs so input VAT on lifts, cleaning and security is correctly apportioned between taxable and exempt areas. 

Over time, capital asset schemes can require annual adjustments for large commercial buildings when the mix of taxable and exempt use shifts, and changes in tenant profile can quietly change how much input VAT on shared costs remains recoverable.

Checkpoints for Contracts and Accounting Systems

Before deals go ahead, boards and finance teams usually work through a short list of checkpoints.

• Identify the exact nature of the supply: property sale, lease, licence to occupy, or service arrangement linked to space.
• Confirm which party is the legal supplier and who will issue VAT invoices.
• Review clauses on rent reviews, break options and incentives to see how VAT interacts with each payment.
• Ensure accounting systems can track VAT on deposits, fit out contributions and variable service charges against the correct property.

Short internal checklists, backed by clear documentation, make VAT audits on commercial property far less stressful. Haven’t registered for VAT? Read our detailed guide about how to do VAT registration in the UAE to know the simple step-by-step process.

Final Thoughts

VAT on commercial property in the UAE will remain a central focus area for tax reviews as real estate continues to drive investment across the country. Clear contracts, clean invoices and good record keeping reduce risk for landlords, tenants and investors.

Arnifi supports boards, developers and corporate occupiers with practical VAT support on new projects, refinancing and portfolio reviews. With focused mapping of contracts and ledgers, Arnifi helps UAE businesses keep commercial property deals tax fit while the organisation grows.

FAQs

1. Is commercial property in the UAE always subject to VAT at 5 percent?

Most sales and leases of commercial property are taxable at 5 percent. Exempt treatment is rare and usually linked to special cases such as transfer of a going concern or specific financial service structures.

2. How is VAT handled on rent free periods and landlord incentives?

Rent free periods and fit out incentives often represent consideration for a longer binding lease. The value may need to be spread across the lease term so VAT returns reflect the economic substance of the agreement.

3. Are deposits for commercial leases subject to VAT in the UAE?

Refundable security deposits are usually outside the scope of VAT while held as security. When a deposit is used to settle rent or other charges, the relevant amount becomes consideration for a taxable supply and VAT applies.

4. What records should property owners keep for VAT on commercial buildings?

Helpful records include lease agreements, side letters, tax invoices, payment schedules, service charge budgets and evidence of input VAT on construction and operating costs. Keeping records by property makes audits much easier to manage.

5. When should a business seek specialist advice on VAT for commercial property?

Specialist input is valuable for large transactions, complex mixed-use projects, free zone structures or any deal involving share transfers rather than direct property sale. Early review of heads of terms often prevents costly VAT surprises later.