Decoding corporate tax implications on UAE real estate investors

The Emirates, renowned for its robust economy and strategic global positioning, continues to attract investors and entrepreneurs alike. Within this dynamic economic landscape, the real estate industry emerges as a cornerstone, playing a pivotal role in propelling the nation’s growth trajectory.

From a tax perspective, individual investors intending to hold real estate for personal gain find themselves in a favourable position since real estate investment income earned by a natural person from an investment activity in land or real estate property in the UAE, which is not conducted, or required to be conducted, through a licence issued by a licensing authority in the UAE, is not subject to the nine per cent rate. Only individuals engaged in business activities requiring a commercial licence are subject to the corporate tax in the UAE. This entitles a natural person, owning several commercial properties in their name, generating rental income even if above Dh1 million, to qualify for exclusion for UAE corporate tax purposes, provided it is not conducted, or required to be conducted through a licence.

It’s important to note that these provisions apply regardless of residency status, ensuring a level playing field for both resident and foreign investors. Conversely, natural persons conducting activities necessitating a trade licence will face a nine per cent corporate tax on profits exceeding Dh375,000, triggered only if annual turnover surpasses Dh1 million.

To clarify further, if the licence is held for a business unrelated to real estate income, then the real estate income directly in the hands of individual would qualify for exclusion i.e. no tax. The same is the case for split income, wherein, if an individual holds a licence for holding specific properties, for example – holiday homes which supposing requires the individual to hold licence, and some residential properties which do not require holding a licence. In such cases only the properties which require the individual to hold a licence would be subject to tax.

Further, If a natural person engages a management company to handle their properties and doesn’t possess or need a licence, the income received remains exempt from the nine per cent tax. However, if the individual establishes a sole establishment or a company to manage the properties, it becomes subject to corporate tax. Alternatively, if the individual owns a company to manage his own properties and pays a management fee to the company, the net real estate income directly in the hands of natural person remains exempt from tax. Further, holding properties through family foundations also offers a tax-free option.

Given the tax complexities surrounding the real estate investment income, it is now not only crucial which property one selects to invest in but also how one decides to manage the real estate investments, for securing the tax benefits offered by law.

Sheetal Soni Partner MICS International DMCC