For UAE business folk, there is no escaping the fact that January 2018 will see the introduction of VAT on sales and leases of commercial property, as recently confirmed by the country’s Ministry of Finance.

Offices, shops and other commercial property will be subject to the new 5 per cent levy. However, sales and leases of residential property will be exempt from the tax, along with undeveloped land. Property development and the first sale of new homes will be subject to a zero rate of VAT.

The word tax may strike fear into those who have lived and worked in the country for a long time, but several real estate professionals say they in fact welcome the move.

Short-term impact

Entrepreneurs in the UAE are used to shifting business landscapes and many say the new tax is an inevitable part of doing business in a rapidly expanding market. Catherine Granger, a long-time British expat and the owner of the management consultancy Trajan Consulting, believes there’s no need for panic.

“Although no new tax is ever welcomed, it was good to hear about the full details of the tax as introduced by the Dubai government finance department.”

“It certainly would not put me off buying commercial property in Dubai. As a commercial hub, the city has many attractions for would-be investors or business owners — location, diversity of business, infrastructure and support are all what make Dubai great,” she says.

The Ministry of Finance also confirmed that businesses that provide taxable goods or services with annual revenue of more than Dh375,000 will be required to register.

Businesses with taxable supplies between Dh375,000 and Dh187,500 will also have the option to register. The ministry is to begin registrations this year.

Unknown factors

While the pending tax is not on everyone’s radar, the effects of the news will be felt soon enough, points out Ahmet Kayhan, President and Founder of real estate information provider

He says most investors are not aware of the VAT element yet, but as the deadline nears, the number of commercial property transactions are expected to increase significantly as investors rush to avoid the extra cost.

“It will certainly have a negative impact on the transaction volume of the commercial properties by increasing the pricing. Commercial properties, especially retail and office, have a lot of pressure on the asset class. Extra cost won’t help with the currently weak position of that property type,” adds Kayhan.

His suggestion is for VAT to be implemented within different ranges. For now, however, firms looking for commercial units at this week’s Cityscape Global would do well to acquaint themselves with the latest VAT news and updates.


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