REALWorld Law

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

The ability to invest in property depends on the class of person/entity and location of the property.

UAE nationals

UAE nationals are individuals possessing UAE nationality and companies and establishments wholly owned by them.

UAE nationals can hold any land interest anywhere in Abu Dhabi.

The same rights are held by:

• The UAE government and governments of other Emirates
• The Abu Dhabi government and entities wholly owned by it

GCC nationals

GCC nationals are nationals of the member countries of the Gulf Co-operation Council, which are the Persian Gulf states of:

• Bahrain
• Kuwait
• Oman
• Qatar
• Saudi Arabia
• United Arab Emirates

and corporate entities wholly owned by them.

GCC nationals can hold any land interest within designated investment areas in Abu Dhabi.

Foreign individuals and corporate entities falling outside categories 1 and 2 above

Foreigners can hold the following land interests within 'designated investment areas' only:

• Floors in buildings (but not the land itself)
• Usufruct rights (rights of exploitation) lasting up to 99 years, and
• Musataha rights (development rights) lasting up to 50 years (renewable by mutual consent for a further term of 50 years)

Also 'individuals, companies and parties to be specified by a decision by the Executive Council', can be afforded the same status as nationals for the purpose of the owning real estate. The Executive Council has so far only issued such decisions in respect of Sorouh Properties PJSC and Aldar Properties PJSC, thereby allowing them to hold land interests throughout Abu Dhabi notwithstanding that they have an element of foreign ownership.

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

There are currently no such taxes charged in the United Arab Emirates.

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

The United Arab Emirates introduced a VAT regime on 1 January 2018. From 1 January 2018, the sale of real estate by businesses which are registered for VAT is subject to the following VAT rates:

• The sale of commercial property (whether new or existing): 5% (standard rated)
• The first sale of new residential property or charitable building (within 3 years of completion): 0% (zero rated)
• The subsequent sale of existing residential property: exempt (no VAT)
• The sale of bare land: exempt (no VAT)
• The sale of a property located within a Designated Zone: out of scope (no VAT)

A special payment procedure may be applicable with the sale of certain commercial real estate by any supplier other than the developer of the property. If this procedure is applicable, the buyer of the real estate must pay the VAT directly to the Federal Tax Authorities (FTA) instead of to the supplier.

Once the payment of the VAT has been made to the FTA, the buyer will receive a Payment Transaction Number. The buyer will be required to produce the Payment Transaction Number to the Land Department in order to process the ownership transfer of the commercial real estate.

In the case of investment properties, the transaction may be treated as the "transfer of a going concern" which is considered out of the scope of VAT. The conditions for obtaining this treatment could be complex and should be closely assessed on a case-by-case basis. 

Whether VAT can be recovered by the buyer will generally depend upon the use of the property. If and to the extent the buyer is using the property to generate taxable supplies (eg charging VAT on rents) then the VAT can in principle be recovered. If the real estate is used for VAT exempt activities, the VAT may not be recoverable. Special input tax apportionment methods for determination of VAT recovery percentage may be available (eg floorspace method), subject to conditions.

The buyer should take advice as change of use of the property could give rise to adjustments. If the VAT paid (input VAT) exceeds the VAT for which the buyer has to account for (output VAT) there may be a delay before the recoverable VAT is repaid by the Federal Tax Authority.

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

These could include:

• Registration dues, such as:
  • Sale and purchase - the seller and purchaser are required to pay registration dues at a rate of between 1% and 4% of the value of the property (typically split equally between the parties). In respect of transfers of off-plan real estate units, the fee is capped at AED 2 million per transaction.
  • Mortgage – one per thousand (ie 0.001%) of the mortgage value and in relation to:
    • Off-plan real estate units or real estate assets subject to Law No. 3 of 2015 (Strata Law) - up to a maximum limit of AED 2 million per transaction
    • All other assets - up to a maximum limit of AED 1 million per transaction

These are payable to the Land Registration Department of the Abu Dhabi Municipality.

• Agents' fees as per their terms of business
• Surveyors' fees for carrying out due diligence
• Lawyers' fees for carrying out due diligence
• Utility connection fees and such like

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

None.

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

This could comprise:

• Registration dues for various types of transaction, including:
• Mortgage
• Mortgage redemption
• Normal utility charges (and connection fees)
• Security deposits on leases

In addition, leases are required to be registered in a new register maintained by the ADM pursuant to a new system known as Tawtheeq. The following fees are payable by the landlord under this system:

• AED 1,000 per building registration (plus AED 5 for registration of each leasable unit)
• AED 100 per registration of each new lease
• AED 100 for renewal of a lease
• AED 50 for termination of a lease
• AED 50 for any further administration

Leases of four years and over are to be registered under the alternate register maintained by the ADM known as Tamleeq. The rules and process to registration are yet to be formally established. There are two different registration fees payable depending on the term of the lease:

• For leases over four years but less than 25 years: registration fees are 1% of the first year’s rent
• For leases over 25 years: registration fees are 4% of the value of the consideration

Responsibility for the registration fees can be provided for in the lease.

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

See Section on other costs of acquisition.

Last modified 31 Aug 2020

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

None.

Last modified 31 Aug 2020