VAT in Dubai will be levied at 5% which will be one of the lowest in the world. At present, Yemen has the lowest VAT chargeable rate at 2%, and North Korea has between 2 to 4% depending on the goods and or services offered. Whilst there are countries that charge around the 20% mark, the highest rate charged at present is Hungary which levies its citizens a whopping 27% of the goods/services value.

Despite the value added tax in the UAE being levied at only 5%, its introduction could raise concerns among some investors and end-users of real estate alike. The chances are that this tax will potentially become a cash flow issue with funds moving from one account to another, i.e. VAT paid will be compensated with VAT charged. It is likely that it could have an adverse effect since the consumer will end up paying more for property related goods and services and therefore could affect the sentiment in general.

‘It’s important to know that there are two types of charge.’ – Mario Volpi

IT IS IMPORTANT TO KNOW THAT THERE ARE TWO TYPES OF CHARGE

The VAT charged on supplies which include services by a registered company (outputs) and the levy paid to suppliers for them to produce these goods and services (inputs). It is likely that these inputs and outputs should level each other out, but sometimes it is not possible to charge VAT in both cases for that to happen.

These goods and services can attract either zero rating or can be exempt from VAT. A zero-rated tax means that zero % is charged for goods and services produced or sold (output) while any levy paid on production costs on inputs can be recovered.

Exempt VAT cannot be charged for outputs, while the provider/seller will have to pay VAT for its inputs.

UNDERSTANDING WHAT LEVY IS CHARGEABLE

When buying a primary off-plan property, a buyer will not have to pay VAT on Dubai real estate to the developer, but a developer will be able to claim back any input levy paid to its suppliers during the course of building the project, therefore off plan property transactions will be classified as zero-rated.

Vat

The secondary market will be exempt from VAT at the point of sale but buyers will, of course, be subject to VAT on commissions and other governmental fees relating to these purchases. Individuals may have to pay VAT on Dubai real estate only in terms of lease management services or other management services.

Commercial property buyers will have to pay VAT on Dubai real estate on both off plan or secondary market units.

If the commercial property is acquired for the purpose of further leasing to commercial tenants, the cost of the VAT paid when buying, for example, a retail unit, a warehouse or office, can be reclaimed when charging the levy for the tenants. These same tenants who are charged VAT from the landlord in addition to the rent will be able to recover the VAT from their commercial activities when charging the levy for goods and services.

IN CONCLUSION

As stated before, the issue of VAT, therefore, becomes a matter of cash flow, so in theory, should not affect the value of real estate units and/or property prices in general.

The advantage for the government to balance the financial books is far more advantageous and will outweigh any negativity in sentiment that the introduction of VAT may bring.

It also remains to be seen if a company or entities will pass on the full amount of value added tax to the consumers as some would prefer to stay competitive in the eyes of the customers by not actually doing so or only partially passing on the charge. All is yet to be revealed when it comes to VAT on property in Dubai…

It is best, however, to go ahead with property investment plans before VAT goes into effect on real estate transactions by making a purchase in an area that best suits your investment needs, albeit not before conducting research on the ROI in different areas of Dubai.

 SOURCE: WWW.BAYUT.COM

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