How VAT will impact on the property sector in the UAE?
The property sector is one of the important industries that must be given extra care while implementing VAT in the UAE. A slight increase of 5% price by way of VAT can make a reasonable impact on the demand for properties; at least for a short-term period. From the information obtained from the MoF through the briefing on the UAE VAT, it is evident that sufficient care is given to the residential property sectors.
Residential rent is exempted from VAT in the UAE. Hence there will not be any hike in the rent by means of VAT. First Sale of residential property ( the first sale means the sales immediately after the construction of the property) will be zero rated. This will help the developer to use the Input credit on the VAT paid on construction such as the VAT paid for the material used for construction, the amount paid to contractors etc. Hence, there will not be any increase in cost of construction because of VAT and hence the price of residential property will not be increased because of implementation of VAT in the UAE. Subsequent sales of residential properties will be exempted. Hence there is no question of increase of property price thereafter as well.
In the case of commercial properties, there will be 5% VAT on sale of property. This will be applicable for lease of property as well. However, the companies will be able to claim the Input VAT paid on their rent used for commercial activities.
Sales of bare land are exempted from UAE VAT.
In short, residential property sector will not have any impact because of implementation of VAT in the UAE.