VAT registration for businesses

Businesses that earn over AED 375,000 on taxable goods or services in a year must register for VAT. Businesses that earn over AED 187,500 per year can choose whether or not to register for VAT. Since larger companies may require their vendors to have a Tax Registration Number (TRN), smaller businesses typically take the option to register for VAT.

Companies registered for VAT collect it from customers and pay this to the government, and can recover VAT that has been paid to suppliers. It means when the company has paid more VAT than they charged, they can reclaim it. To make it transparent and define whether it's paid the right way, businesses are required to document their income, expenses and VAT charged. This is to prevent VAT from being applied on a given product or service multiple times. VAT returns must be filed within 28 days from the end of the ‘tax period’ which applies to the business. The standard tax period is:

• Quarterly for businesses with an annual turnover below AED 150 million

• Monthly for businesses with an annual turnover of AED 150 million or more

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VAT for Residential Properties

For the most part, residential properties are exempt from VAT. This means the owner does not have to register for VAT and will not charge VAT on rent or sale. The owner also cannot claim a refund for any VAT incurred in this regard.

The following are considered residential properties that are exempt from VAT:

• Villas and apartments that are not serviced

• Accommodation for students and labourers

• Accommodation for armed forces and police

• Orphanages, nursing homes and rest homes

However, services related to the property such as maintenance, owners associations, utilities and real estate brokerage are subject to 5% VAT.

The first supply of a new residential property within the first three years of construction will be zero-rated or at 0% VAT. This allows for recovering of incurred VAT. However, all subsequent supplies shall be exempt, even if within the first three years.

VAT for Commercial Properties

On the other hand, VAT is applicable on commercial properties, such as:

When renting, commercial owners must register for VAT and charge 5% VAT on the rent. Owners can recover VAT incurred on expenses related to the commercial renting business.

When selling, the application of VAT depends on whether the building is vacant, whether the buyer is a taxable person and the value of the sale:

• Non-rented property – VAT is applicable

• Rented property being sold for less than $102,000 (AED 375,000) to a non-taxable person – VAT is applicable

• Rented or partially rented property sold to a taxable person – VAT is not charged

• If a building is sold for over $1.3 million (AED 5 million), special terms apply

Developers can sell newly built properties at 0% VAT, and reclaim VAT incurred during construction.

'Pay as you go' fees for property owners

Apart from VAT, and indeed before the introduction of VAT, locals and expats must pay fees for specific services that they utilise.

• Housing Fee of 5% in Dubai (Expats only) – Dubai Municipality charges a housing, sewerage and irrigation fee through DEWA (Dubai Electricity and Water Authority). The fee is 5% of the annual rent value for tenants or 0.5% of the value of the property for owners. The fee is divided into 12 months and applied to the monthly DEWA bill. No additional VAT is applied on the housing fee.

If the unit is vacant and DEWA services have been switched off, no fee will apply.

Emiratis receive electricity at subsidised rates and water for free.

• Property Transfer fee of 4% and admin fees when buying or selling a property with the Dubai Land Department.