VAT Payment guide for commercial property buyers3 min read

Who are commercial property buyers?

Commercial property buyers are individuals, companies, or entities that purchase commercial real estate for various purposes. Commercial properties are real estate assets primarily used for business or income-generating activities rather than residential purposes. Commercial property buyers can include:

1. Investors: Individuals or institutional investors, such as real estate investment trusts (REITs), pension funds, or private equity firms, may purchase commercial properties as part of their investment portfolio. They seek rental income and potential appreciation in property value.

2. Business Owners: Companies or entrepreneurs may buy commercial properties to establish or expand their business operations. This can include retail spaces, office buildings, industrial facilities, or hospitality properties.

3. Developers: Real estate developers acquire commercial properties with the intention of renovating, redeveloping, or constructing new structures to enhance their value. They may then sell or lease the improved properties.

4. Real Estate Investment Firms: Specialized firms focused on commercial real estate investment may buy properties to manage and optimize returns for their investors. These firms often have expertise in property management, leasing, and value enhancement.

5. Owner-Occupiers: Some businesses prefer to own the property they operate from rather than leasing. In such cases, the business itself acts as the commercial property buyer, becoming both the owner and occupier of the space.

6. Real Estate Syndicates: Groups of investors may form syndicates to pool their resources for the purchase of commercial properties. This collaborative approach allows individuals with smaller capital to participate in larger real estate transactions.

7. Government Entities: Government bodies or agencies may acquire commercial properties for public infrastructure projects, administrative offices, or other public services.

8. High-Net-Worth Individuals: Affluent individuals may invest in commercial real estate directly or through investment funds to diversify their portfolios and benefit from potential income and appreciation.

Commercial property buyers engage in transactions that involve a thorough due diligence process, negotiation, and often financing arrangements. The type of commercial property purchased can vary widely, including retail spaces, office buildings, industrial warehouses, hotels, and more. The motivation for purchasing commercial real estate may range from investment objectives to strategic business needs.

VAT on commercial property

In the UAE, commercial property transactions are generally subject to VAT. Here are some key points related to VAT on commercial property in the UAE:

1. VAT Registration:

   – Businesses engaged in the sale or lease of commercial properties may be required to register for VAT.

2. VAT on Sales:

   – VAT is typically applicable on the sale of commercial properties in the UAE.

   – The buyer is usually responsible for paying VAT on the transaction.

3. VAT on Leases:

   – Commercial property leases in the UAE may be subject to VAT.

   – The landlord or property owner may charge VAT on the rental amount, and the tenant is responsible for paying this VAT.

4. Exemptions and Thresholds:

   – The UAE VAT law provides certain exemptions and thresholds. For instance, residential properties may be exempt from VAT.

5. Input Tax Credits:

   – Businesses involved in commercial property transactions may be eligible for input tax credits. This allows them to claim back the VAT they paid on expenses related to the commercial property.

6. Zero-Rated Transactions:

   – Some commercial property transactions may be treated as zero-rated, where VAT is charged at a rate of 0%.

It’s crucial to stay informed about any changes in VAT regulations, as the UAE government may update policies and guidelines. For the most accurate and current information, it is recommended to check with the UAE Federal Tax Authority (FTA) or consult with a tax professional familiar with the UAE tax laws.

The Federal Tax Authority (FTA) introduced a guide on 6th May 2021. It facilitates persons who are buying or selling a commercial property that is subject to Value Added Tax (VAT) in the United Arab Emirates (U.A.E) to complete their VAT payment on their (FTA’s) e-services. 

It has 2 steps required to complete the VAT payment

1. Create an e-services account

2. Complete your VAT payment

VAT-Payment-for-Commercial-Property-Buyers-User-GuideEnglishv20-06-05-2021Download