In the UAE, commercial property transactions also fall under the VAT system, introduced on January 1, 2018, at a standard rate of 5%. This means that when purchasing a commercial property, buyers are required to pay 5% VAT, which must be processed through the Federal Tax Authority (FTA) portal.
It is important to understand how VAT is applied to these transactions, as the rules may vary depending on the type of property and its use. This article explains steps for VAT payment on commercial property along with the situations where VAT can be avoided.
The tax experts at Now Consultant help you pay the VAT on commercial property in compliance with the FTA regulations.
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What Is a Commercial Property Concerning VAT?
In the UAE, commercial property refers to real estate used for business purposes. This includes office spaces, retail outlets, warehouses, hotels, restaurants, industrial facilities, and repurposed commercial villas. It also encompasses healthcare facilities, educational buildings, and mixed-use developments.
Types of Commercial Properties Subject to VAT
- Commercial properties include rented or sold office spaces, retail outlets, hotels, serviced apartments, and any properties explicitly designated as commercial rather than residential.
- If the property owner offers free incentives, VAT will be charged.
- Any movable property and resources not attached to the ground are considered commercial.
Who Can Collect VAT on Commercial Property In UAE?
The government levies direct taxes on individuals’ earnings collected directly from them. Conversely, indirect taxes are gathered via intermediaries who act as agents for the government’s tax collection.
In that scenario, registered businesses play a pivotal role in collecting and examining VAT payments made by customers, effectively bolstering government revenue. The Federal Tax Authority (FTA) supervises and enforces the VAT audits, and guarantees tax collection in the UAE
VAT Applications On Commercial Property In UAE?
Knowing the basics of VAT is important for UAE commercial property deals.
1. VAT On Sale of Commercial Property In UAE
A standard VAT rate of 5% applies when it comes to commercial properties in the UAE. This tax is applicable whether you’re buying a newly constructed property or a resale of an existing one. As an example, when acquiring a commercial property valued at AED 1 million, a VAT payment of AED 50,000 is obligatory, constituting 5% of the overall purchase price.
2. VAT On Rent of Commercial Property In UAE:
Renting commercial properties in the UAE is also within the scope of VAT. Generally, VAT is computed depending on the entire rental sum. For instance, if the annual rent for a retail space amounts to AED 200,000, the VAT due would be AED 10,000 (equivalent to 5% of AED 200,000).
2. VAT On Services In Commercial Property In UAE:
Numerous business establishments within the UAE, notably those situated in commercial towers and structures, include fees for upkeep, security, and communal services. VAT also applies to the service charges above. Both property owners and tenants are responsible for settling VAT on these service charges, thereby introducing an extra expense to the overall occupancy costs.
3. VAT on Development and Construction of Commercial Property in UAE
For those engaged in developing or constructing commercial property in the UAE, it is important to comprehend the VAT principles. VAT is applicable at the standard rate of 5% to provide construction services and sell building materials. Therefore, developers should incorporate these VAT expenses into their project planning considerations.
How To Pay VAT on Commercial Property Through FTA Portal?
The following is a step-by-step guide for VAT payment on commercial property in the UAE through the FTA portal:
Step 1: Create an e-Services Account
To pay VAT on a commercial property purchase, you first need to create an e-Services account on the FTA portal if you do not already have one. Here is the sign-up process for your new account on the FTA portal.
Sign-Up Process:
- You need to enter your email address to register as a new user and choose a unique password.
- After entering your email, you will receive a verification email at your registered address.
- Here you will see the the instructions to verify your email.
Once your email is verified, your e-Services account will be successfully created. Now, you can log in to the FTA e-Services portal.
Step 2: Log in to the FTA Portal and Access ‘My Payments’
Once your account is ready, follow the instructions to start the process of VAT payment on commercial property in the FTA portal.
- Now log in to the FTA portal.
- Go to the ‘My Payments’ tab.
Step 3: Select Commercial Property Sale
In the My Payment tab, you need to select the ‘Miscellaneous Payment’ section on the portal.
Here the different options appear on the screen. You should select ‘Commercial property sale’ from the ‘Payment for’ drop-down list.
Ensure you have a tax invoice from the seller. This invoice shows the VAT amount and the seller’s TRN.
Step 4: Enter Required Information
The following mandatory details are required to be entered under the ‘Miscellaneous payment’ box:
- VAT Amount: It is found on the tax invoice provided by the seller.
- Seller’s TRN: It is available on the tax invoice from the seller.
- Commercial Property Number: It is provided by the seller or the land department.
- Date of Sale: It is available on the tax invoice.
- Land Department: You can select the relevant department from the drop-down list.
After filling in all the above details, click on the ‘Make Payment’ button.
Step 5: Complete the VAT Payment
- After clicking ‘Make Payment,’ you will see the ‘Payment Information’ screen.
- Click the ‘Pay Now’ button at the bottom left to be directed to the e-Dirham gateway.
- On the e-Dirham gateway, choose to pay using either an e-Dirham or a non-e-Dirham card.
- After payment, a transaction number will be automatically generated.
How To Pay VAT On Selling Of Commercial Property?
When selling a commercial property in UAE by a non-developer supplier, there’s a specific 5% VAT process. The seller issues a tax invoice, but the buyer must pay the VAT directly to the Federal Tax Authority (FTA) before completing the property transfer. They can also use an FTA-designated bank if available in the Emirate.
Follow the below steps:
- The buyer receives a Payment Transaction Number.
- The buyer keeps the proof of payment, detailing the VAT payment (if paid through a bank).
- The Payment Transaction Number or proof of payment (if relevant) is presented to the Land Department for the ownership transfer.
- The supplier reports the property’s output tax within their regular VAT return as per standard procedure.
Input VAT Recovery For Commercial Properties
An important factor for commercial property owners is the potential for input VAT reclamation. Enterprises involved in selling or leasing commercial properties often have the opportunity to reclaim the VAT they’ve disbursed for expenses linked to those properties.
This encompasses VAT paid on construction, refurbishment, and upkeep costs. The ability to reclaim input VAT can notably impact the total VAT liability in a commercial property deal.
VAT Exemptions On Properties In UAE:
Although the standard VAT rate is relevant for most commercial property transactions, it’s crucial to be aware of specific exemptions and special situations:
a. VAT on Residential Property in UAE: Property sales and leases are typically exempt from VAT for six months. Remember, this exemption doesn’t cover commercial property deals.
b. Undeveloped Land: In general, transactions involving undeveloped land, characterized by the absence of any infrastructure, are typically exempt from VAT. Yet, VAT may become relevant when the land is designated for commercial development, particularly in connection with subsequent construction and development activities.
c. Mixed-Use Developments: The VAT treatment in mixed-use development situations can fluctuate depending on property classification and the development’s intended purpose.
d. Financial Services: Certain financial services linked to commercial property deals, like mortgage lending and insurance, are exempted from VAT.
How We Can Help You?
Now Consultant helps businesses with VAT on commercial property in the UAE in all scenarios. our expert team excels in various VAT services, such as VAT calculations and VAT audits. We also provide assistance with VAT registration and de-registration procedures.
Additionally, their expertise extends to efficient VAT return filings and expert guidance in matters related to VAT reconsideration for commercial properties. Consult with our team to get tax compliance and ensure efficient working on Value Added Tax.
