VAT will be levied on service charge for real estate brokers

VAT will be levied on service charge for real estate brokers
Published: 17 December 2017 - 11 a.m.

UAE residents renting or buying property from January 1, 2018, will have to pay an additional 5% to the UAE government, collected by their broker, on the total commission of a rent or sale, according to a press release by Propertyfinder Group.

Simon Comina, chief financial officer at Propertyfinder Group, said that the biggest confusion seems to be on whether VAT will be levied on the real estate transaction or on the service charge for the real estate broker.

For a commercial building, both will incur a 5% VAT; while for a residential building, VAT will only be levied on the service charge for the broker, he clarified.

“As such, VAT should not have any major slowing down effect on a buyer-friendly real estate climate and should have a minimal impact on any of our residential rents,” he said.

According to the release, owners of residential properties do not have to register for VAT as long as they do not have any other business activities. “The first supply of a new residence that is upon first handover by a developer is zero-rated within the first three years after its construction. Subsequent sale or rental of such property is exempt of VAT whenever such transaction occurs,” the release said.

“Owners of commercial property, however, will have to register with the Federal Tax Authority (FTA) if the value of supply (the lease and/or sale) over the preceding 12 months or the coming 30 days exceeds Dh375,000.

The VAT rate for such sale and rent of a commercial property is 5%. However, such owner, by registering with the FTA, will generally also be able to recover VAT with respect to expenses related to the supply of the building,” the release said.

The Federal Tax Authority (FTA) has clarified that all owners of commercial buildings, developers, providers of services to the commercial or residential property sector should register before 31 December 2017 if their taxable supplies made and imports received exceed AED375,000 for the last 12 months.

Once registered, businesses need to ensure compliance with the tax obligations, such as displaying the words “Tax Invoice” and TRN on all invoices, submitting tax returns, paying tax, etc.

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