Handling Landlord Tax in Dubai

July 20, 2018

Dubai has emerged as the ideal real estate investment destination in the Middle East. This is because there are no taxes on home sales. However, that doesn’t mean that landlords operate in an absolutely free environment. There are private community fees, such as an owners’ association. It is usually pegged and calculated per square footage. In Dubai, the landlord tax is minimal but still important.

According to the Federal Tax Authority, beginning on Jan 1, 2018, the authorities have been implementing a VAT of 5%. Many landlords wonder whether this will affect the rental business.

looking up at the blue sky with palm trees and buildings all around

Are residential buildings subject to VAT?

Residential buildings are zero-rated during the first three years of construction. Subsequent supplies are the same.

Mixed-use buildings?

Sale of the residential portion of a mixed-use building will be exempt or zero-rated. This is dependant on whether it’s the first supply or subsequent supply. For the commercial portion, sale or rent has 5% VAT. Landlords apportion and categorize the taxable supply. There is a 4% one-time registration fee when buying or selling a residential property. The buyer and seller split it in half.

Be aware of other indirect taxes and other transactional related costs. These costs and fees fall under three major categories:

  • Registration and title acquisition cost
  • Mortgage associated cost if financed by a bank.
  • Legal fee

For example, purchasing a property worth AED 3,700,000. Then pay a tax of AED 148,000 to DLD. Followed by a title deed and transfer a fee of AED 4,500.

When being financed by a mortgage, there is an additional registration fee (0.25% of the loan). That is not including the 1% mortgage processing fee, 0.1% valuation fee, 2% brokers’ commission, and legal fees.

In Dubai, most taxes and fees get automatically collected. Inheritance taxes are not imposed. There is simply a 4% ownership transfer fee to pay. As opposed to many countries, there are no property gains taxes.

In conclusion

Boats sit in the water next to tall buildings in Dubai

Having handled the finances for hundreds of apartments, Blueground is geared towards making it easy for property owners to lease their homes without needing to know the fine print about the landlord tax laws.

The UAE Federal Government doesn’t directly impose taxes on landlords. It is highly unlikely that they will start doing so, given the significance this aspect has achieved. Dubai is one of the best property markets in the world. Let us make the entire process easy by handling your rental!

United Arab Emirates