Important Updates on VAT for Real Estate for Investors and Developers
Important Updates on Real Estate and VAT for Investors and Developers
Developers and investors from all over the world have long been drawn to the United Arab Emirates. With the implementation of Value Added Tax (VAT) under Federal Decree-Law No. 8 of 2017, the real estate sector has experienced substantial regulatory changes. Based on recent changes to the Executive Regulations, the VAT implications for real estate transactions have been further clarified as of November 2024.
1. The use of VAT in real estate
The application of VAT may differ depending on the nature of the real estate transaction. Understanding the variances in real estate transactions is essential for financial planning and compliance:
Taxable Materials:
• Commercial real estate sales and leases.
• Offering services related to construction.
• Provision of raw resources.
Exempt Materials:
• Residential property sales or leases after completion following their initial sale.
•The trades of bare land.
Zero-Rated Materials:
• The first residential property sale in three years after construction.
• Real estate services exported outside of the United Arab Emirates.
2. Key Updates to Executive Regulation 2024
Real estate transactions have undergone significant adjustments as a result of the Executive Regulation’s revision.
Implications of VAT for Mixed-Use Projects
Properties where developers have built a structure featuring both residential and commercial units are known as mixed-use developments. To provide correct reporting and compliance, the VAT treatment for such properties should be distributed according to consumption. Repercussions:
• Developers must identify the parts that are taxable and exempt.
• Accurate documentation and invoicing are required.
The Effect of VAT on Long-Term Leases
When a renter with a valid UAE ID issued by the federal authority for identification and citizenship signs a long-term (more than six-month) lease, residential properties are still exempt from VAT. Both landlords and tenants now have greater clarity thanks to this modification.
Adjustments for VAT Input Recovery
For zero-rated properties, the developers have a specific amount of time to seek VAT input recovery on construction costs. This change stimulated the development of residential projects.
Providing Clarity on Raw/Bare Land
According to the most recent executive order, transactions involving property with partially finished constructions are not taken into account when determining what constitutes raw land or bare land for UAE tax purposes. Before making a purchase, it is advised to confirm the land classification with the local authorities.
Streamlined de-registration of VAT for real estate organisations
Small developers will have a lighter compliance burden as a result of the FTA’s simplified procedure for deregistering real estate businesses that don’t meet the requirements for VAT registration.
3. The Best Course of Action for Investors and Developers
Undertaking an Impact Analysis on VAT
Understanding how VAT will impact your project is crucial, so think about hiring a tax professional to:
➢Determine whether new developments and ongoing projects are applicable to VAT.
➢Verify that the properties are appropriately categorised.
Maintaining accurate records is important.
Record keeping is crucial for developers and investors when it comes to compliance for the following reasons.
➢ It is important to keep thorough records of the construction expense bills.
➢ Records such as contracts and leases ought to be preserved.
➢ Mixed-use properties should have their VAT appropriately adjusted.
How Technology Is Used
Real estate developers can spend money on accounting software that can calculate VAT in accordance with FTA rules. The characteristics that can be included include the following ones:
• AI-powered VAT distribution.
• Instantaneous tax submission.
• Document storage for audits on the cloud.
Designate a Registered Tax Agent
The qualified tax agent with FTA approval can offer helpful advice and assistance in the following areas:
➛ VAT returns are prepared and filed according to the client’s filing period.
➺ A tax agent, rather than the owner, may represent your company during FTA audits.
➺ When it comes to VAT recovery, the tax agent can offer strategic recommendations that are optimised
4. Success in Real Estate vs. VAT Compliance
Reputational harm and heavy fines can be avoided by adhering to VAT regulations. Additionally, knowing and abiding by VAT requirements can:
• Increase tax revenue.
• Cash flow management is enhanced.
• Has the ability to increase stakeholder and investor confidence.
In conclusion
Updates to the VAT law have made it crucial for developers and investors to maintain compliance in real estate market in the UAE. Keeping accurate records and abreast of VAT laws can assist prevent problems. By reducing taxes, we at IBR Group UAE help real estate companies keep current and comply with VAT regulations.
Partner with IBR Group UAE.
Supported by our extensive understanding of real estate transactions and UAE tax laws, we provide:
• 360-degree VAT consulting services.
• Help with VAT refunds and VAT registration.
• Support for regulatory evaluations and audits.
Let us take care of your tax compliance obligation so you can concentrate on investing and expanding.
Schedule a free consultation with one of the IBR Group UAE team experts to find out more about How VAT Affects Real Estate Developers and Investors.