Commercial property sales subject to VAT from next year – but residential is exempt

Property experts have welcomed news from the Ministry of Finance that sales and leases of commercial property will be subject to VAT from January, but residential property will not.

In a briefing session for advisers last week at Festival City, civil servants said that offices, shops and other commercial property will be subject to the new 5 per cent VAT levy.

But sales and leases of residential property will be exempt from the tax, along with undeveloped land. Property development and the first sale of new homes will be subject to a zero rate of VAT.

This means property developers will be able to claim back any VAT they have to pay from the Government.

“These charges are broadly in line with what we expected and in line with the way in which VAT operates elsewhere in the world,” said Alan Robertson, the chief executive for JLL’s Middle East operation. “Obviously no new tax is going to be exactly welcomed, but from what we can see the tax is designed to be cost-neutral to registered businesses, so we do not expect it to have too much impact on commercial organisations.”

Last week the Ministry of Finance announced that businesses which provide taxable goods or services with annual revenue of more than Dh375,000 will be required to register. Businesses with tax­able supplies below Dh375,000 but over Dh187,500 will also have the option to register.

“I think with all these things dealing with the unknown is far worse than dealing with the known and now that the details of the new tax are coming out, occupiers will able to put the right systems in place in preparation to deal with it,” said Matthew Dadd, a real estate partner at Knight Frank in Abu Dhabi.

“I’m not sure that many of the occupiers we deal with have yet come to grips with the fact that we are less than a year away from implementation,” he added.

The Ministry of Finance will start registering companies that are above the yearly threshold for value added tax in the second half of this year as the country gears up for implementing the levy from January 1, 2018.

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