The UAE’s implementation of value-added tax (VAT) is just weeks away. And while the UAE government has published a pretty comprehensive list of exactly which products and services will be taxed, some confusion still surrounds tax on rental contracts.
Happily, Propertyfinder Group has shined a light on the matter. And the bottom line is that, no, you won’t have to pay VAT on your rental contract.
“The biggest confusion we are seeing in the market is the mixing up of a real estate transaction (rent or sale) with the service of a real estate broker, whereby for a commercial building both will incur a 5% VAT and for a residential building the first one will not incur any VAT as opposed to the second one (5%),” said Simon Comina, Propertyfinder’s CFO, in a statement.
Essentially, a real estate transaction (a rent or a sale) won’t have VAT levied on it if it’s a residential building. However, there will be VAT added on to the real estate broker’s fees or services.
So, for example, if you’re renting an apartment for AED 100,000, you’ll still only have to pay AED 100,000 to rent that apartment. However, the estate agent will likely charge you AED 5,000 in fees to create the rental agreement (5% of the rental price). The 5% VAT will be applied to that AED 5,000, so you’ll have to pay the estate agent AED 5,250 in total – inclusive of VAT.
And if you’re the private landlord of a residential apartment or villa, you won’t need to register for VAT.
That said, commercial property leasing is a little different. Say you’ve got an office space or a warehouse, and you want to rent it to another business, you’ll have to add 5% VAT onto the cost of the lease. And the estate agent will add 5% onto its fees as well.
Check out our comprehensive guide to VAT in the UAE here.