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Real Estate Investments In The UAE - A Tax Perspective

The UAE, with its strong economy, growing population, and strategic location, has become a hub for investors and businesses. The real estate sector, a key contributor to the nation's economy, is now experiencing changes with the introduction of Corporate Tax. This move is part of the UAE's strategy to diversify its revenue sources, and it's essential to understand the specifics of this tax, including rates and exemptions.

Dubai, in particular, stands out as a preferred destination for property investment, owing to its prosperous economy, attractive business climate, and high living standards. Investors have commonly used corporate structures for real estate investments, involving local free zone offshore companies owned by foreign entities, ultimately controlled by individual investors and their families. With the UAE's recent implementation of corporation tax, these investment structures might now be subject to new tax liabilities, affecting even residential properties used by family members.

Initially, the impact of the new corporate tax law on the real estate sector was not fully explained or indeed understood. However, recent government decisions have clarified how this tax will apply to revenues generated from real estate activities, affecting both companies and individual investors. 

Tax Treatment for Property Owned by Individuals

Individuals (resident or not resident) owning property in the UAE may be subject to tax under Cabinet Decision No. 49 of 2023 if their activities are associated with any licensed commercial activity and the turnover from such activities exceeds AED 1 million in a calendar year. 

If the individual's activity is of a pure investment nature and can be conducted without a commercial license, relating to the sale, leasing, sub-leasing, or renting of real estate, the income from such activity is non-taxable.

Tax Treatment for Property Owned by Companies

Companies that own real estate are subject to different treatment based on the category of the property:

Non-commercial Property: this category includes real estate used non-exclusively as a place of residence or accommodation, such as hotels, motels, bed and breakfast establishments, and serviced apartment. Income attributable to non-commercial property is subject to a corporate tax rate of 9%.

Commercial Property in Free Zone: the treatment varies for owners with the status of a Qualifying Free Zone Person (QFZP) compared to typical taxpayers. If both the owner and the transacting parties are established in the Free Zone, income from such activity is considered Qualifying Income and is subject to a 0% corporate tax rate. In all other situations, where the transacting party is outside the Free Zone or the owner doesn't meet QFZP conditions, income from commercial property in the Free Zone is subject to a corporate tax rate of 9%.

Comercial Property in Mainland: income from commercial property is subject to a corporate tax rate of 9%.

Concluding Remarks

The Real Estate market is a vital sector in the UAE and involves a numbers of stakeholders. The implementation of the CT will have a significant impact on the current and preexisting real estate ownership structures.

At Statura, we are ready to assist you in the preliminary tax assessment on your real estate investments.