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No VAT on sale of leased commercial property by taxable person, says FTA

Leased commercial property will not be considered a supply during its sale by the taxable person, therefore, it will not be taxable, the Federal Tax Authority (FTA) and Dubai Land Department (DLD) clarified on Tuesday.
Both the government entities emphasised that there has been a limited impact of value-added tax (VAT) on the UAE's real estate as majority of the transactions are either not subject to or exempt from the five per cent VAT. Currently, only the sale of vacant commercial properties and commercial property leases are subject to taxation.
Sultan Butti bin Mejren, director-general of DLD, pointed out that 85 per cent of components in Dubai's total real estate sector are not subject to VAT.
"When reviewing the details of sales, rents and other transactions, we found that the value of bare land sales, residential properties, and occupied commercial and retail properties comprise the largest percentage of total properties traded during 2017. This ratio is expected to remain over the coming years and even stands to increase with commercial offices continuing to improve their leasing operations and minimise empty units," he added. Sailesh Jatania, CEO of Gemini Property Developers, said it would be a big relief for the buyers to exclude sale of the leased commercial supply by a taxable person from the taxation.
He confirmed that there is a limited impact of VAT on the residential property but there is a direct impact on the commercial property. "As far as commercial property is concerned, the cost for the buyer is high. Buyers are demanding to reduce the price of retail units, because they have to pay VAT as well," he said.
Bin Mejren of DLD clarified that in terms of rents, commercial real estate accounted for 31 per cent of the properties leased in the Dubai real estate market, or Dh21 billion out of Dh66 billion registered rents. As for the real estate businesses, it will be possible to recover taxes paid via the tax system.
Khalid Ali Al Bustani, director-general of the FTA, said landlords who rent their properties for residential purposes are not required to register with FTA, if all supplies made by the owner are exempt from tax. In addition, the tax paid on facility management services of commercial buildings can be deducted by the owners on their VAT returns.
"The Federal Decree-Law No. 8 of 2017 on value-added tax and its Executive Regulation provide several mechanisms to ensure the continued competitiveness of the real estate sector. For example, the law stipulates that the first supply of residential buildings within three years of completion is subject to the zero percent tax rate, which means that owners or investors can recover the tax related to the expenses incurred on construction. Residential buildings will be exempted from tax after first supply," he said. - waheedabbas@khaleejtimes.com