Good news today as the Ministry of Finance (MoF) confirmed today that sales and rental leases on residential property within Dubai and across the UAE will be exempt from VAT which is scheduled to be introduced from 1 January 2018. VAT would however be applicable to commercial property sales and leases.
In general this is positive news for the Dubai and wider UAE property sector which is now showing strong signs of recovery after a two and a half year decline. Many properties within the UAE witnessed a 20% to 30% decline in their capital values since their mid 2014 peak. There is evidence that buyers sensing that the market is at bottom are now diving in. A VAT on Dubai & UAE property would have no doubt slowed this resurgence.
Dubai property sales already incur a 4% transfer fee as charged by the Dubai Land Department. All Dubai expats whether they be renters or owners are subject to a 5% housing fee which is calculated as 5% of the rental value of the property. Mortgaged buyers in Dubai are also hit with a fee of 0.25% of the loan amount. Property transfer fees in Abu Dhabi range from 1% to 2% payable to the developer (often a Abu Dhabi government owned entity) and renters are likewise hit with a housing fee of 3% so adding a VAT on these would have essentially amounted to double taxation.
While details of VAT are still yet to be fully released, the VAT is expected to generate in excess of AED32 Billion in its first 2 years to UAE government revenues and are a deliberate bid by them to diversify away from reliance on fossil fuels.
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