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21/07/2025
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The introduction of Value Added Tax (VAT) in the UAE under Federal Decree-Law No. 8 of 2017 reshaped the dynamics of commercial real estate transactions. Today, whether you're selling commercial buildings, acquiring office space, or leasing non-residential properties, understanding VAT on commercial property in UAE is vital.
This guide walks investors through the VAT treatment of real estate transactions, clarifies how to recover VAT paid on eligible expenses, and helps you remain compliant with the Federal Tax Authority (FTA), the governing body regulating VAT through its digital platform, EmaraTax.
VAT in the UAE is a form of indirect tax levied on most goods and services, including commercial properties. The standard VAT rate is 5%, applicable to a wide range of taxable supplies across sectors. The Federal Tax Authority (FTA) oversees the collection, compliance, and enforcement of VAT, including real estate-specific transactions.
Businesses and individuals who qualify as taxable persons under the VAT regime are required to register through the EmaraTax platform. Once registered, they are obligated to charge VAT on applicable supplies, issue compliant tax invoices, maintain VAT records for specified durations, and submit accurate VAT returns.
Commercial properties in the UAE encompass offices, business centers, warehouses, logistics hubs, retail stores, shopping malls, hotels, and serviced apartments that are used for business purposes. Properties with a commercial component in mixed-use developments also fall under this category.
On the other hand, residential properties are generally exempt or zero-rated for VAT purposes, especially when sold as part of a first supply. Subsequent leases or sales of residential buildings are typically treated as exempt supplies. The classification of a property as commercial or residential has a direct impact on the VAT treatment and recovery eligibility.
VAT applies to several scenarios involving commercial properties:
Treated as a taxable supply, such sales are subject to 5% VAT. The seller must be VAT-registered and issue a proper tax invoice. Buyers who are also registered for VAT can usually recover the input VAT paid.
Depending on the seller’s VAT status and the nature of the transaction, the supply may either be exempt or taxable.
Leasing activities are always subject to VAT at the standard rate of 5%. Landlords are required to collect VAT on rental income, while tenants using the space for taxable business purposes may be eligible to recover VAT.
These VAT implications apply to all types of commercial real estate transactions, including freehold and leasehold transfers.
Under the UAE's Value Added Tax (VAT) regime, any taxable person engaged in commercial real estate transactions must adhere to specific thresholds and regulatory requirements. VAT registration becomes mandatory when the total value of taxable supplies exceeds AED 375,000 in the previous 12 months. For those whose supplies are above AED 187,500 but below the mandatory threshold, voluntary registration is an option. In particular, non-resident commercial property owners are required to register for VAT as soon as they make a taxable supply, regardless of their annual turnover, ensuring alignment with the Federal Tax Authority (FTA).
Once registered, businesses must comply with the full scope of VAT regulations. This includes issuing a proper tax invoice for every supply, submitting VAT returns, and retaining supporting documents for a minimum of five years or up to fifteen years for real estate-related documentation. These records must cover all expenses related to the property, including real estate agent fees, service charges, and operational costs.
Neglecting these obligations may result in a denial of input VAT credit, rejection of tax credit notes, or classification of costs as irrecoverable. Errors in filing, poor VAT procedures, or a failure to retain evidence may also trigger FTA audits and penalties. Staying compliant is not just about tax, it’s about safeguarding your investments across all real estate transactions, whether in commercial or residential property. Proper recordkeeping ensures that your VAT collection, recovery, and even VAT deregistration (if applicable) are managed seamlessly through the EmaraTax portal.
In the UAE, investors purchasing or leasing commercial properties often incur substantial VAT costs, but these may be recoverable under the right conditions. Input VAT on business expenses such as construction services, professional fees, renovations, and property management is recoverable if the property is used solely for taxable supplies. These include activities like renting out offices, selling shops, or leasing non-residential buildings. All VAT paid must be directly related to the property's taxable use, which allows a VAT registered person to claim a VAT refund or use it as input VAT credit in their tax return filings.
When a property qualifies as a capital asset, it falls under the Capital Asset Scheme, allowing the value added tax paid to be recovered and adjusted over a ten-year period. However, if the nature of the property's use changes such as being converted from commercial use to residential purposes, an adjustment is required, and any unrecovered amount may become an irrecoverable cost.
In cases involving mixed-use developments, where a commercial part of the building coexists with residential buildings, input tax must be apportioned based on actual use. The commercial building portion attracts VAT at 5%, while the residential property may be exempt or zero rated, particularly on first supply. Developers and investors must separate expenses related to the commercial portion and apply accurate taxable person calculations. Inaccurate apportionment could lead to audit risk and a denial of the recover VAT paid.
Only input VAT on taxable business activities (e.g., office leasing, commercial rentals) is recoverable.
Properties under the Capital Asset Scheme must be monitored for 10 years for potential VAT adjustments.
If the property's use changes from taxable to exempt, a capital asset adjustment must be made.
Mixed-use developments require careful VAT apportionment between commercial and residential areas.
Failure to properly allocate expenses may lead to the classification of some VAT as irrecoverable.
Whether you're managing commercial real estate portfolios or mixed-use towers, correct input recovery planning and documentation are vital for staying compliant and unlocking the full benefit of the value added tax VAT regime.
Designated Zones such as certain free zones recognized by the FTA are treated as being outside the UAE for VAT purposes under specific conditions. However, this status does not exempt all transactions from VAT.
For example, if a commercial property within a Designated Zone is supplied to a UAE mainland business, the transaction may still be subject to VAT. Additionally, related services such as legal documentation, construction, and professional consultancy may attract VAT regardless of the property's location.
Before entering into a transaction involving a Designated Zone, it is essential to confirm the zone’s FTA designation, evaluate the supply chain, and determine the VAT treatment of all services rendered.
In the case of off-plan commercial property purchases, several VAT-related steps must be taken. The buyer must ensure that the developer is VAT-registered and that a valid Payment Transaction Number (PTN) is issued through the EmaraTax system.
VAT must be paid before the sale can be registered with the Land Department. This applies to both primary and secondary market transactions. Failing to follow these procedures may result in delays in ownership transfer and potential non-compliance penalties.
Non-compliance with UAE VAT regulations for commercial properties can have serious consequences. These include fines, late-payment penalties, denial of VAT recovery, reputational damage, and delays in completing property registrations or obtaining VAT refunds. In severe cases, the FTA may impose further restrictions, including temporary VAT deregistration.
Investors must be proactive in understanding the tax framework, following the correct procedures, and keeping accurate records of all VAT-related transactions.
At Young & Right, we provide end-to-end VAT compliance services for businesses and individuals involved in UAE real estate. We help investors stay aligned with VAT laws while optimizing their tax position in every transaction. This is how Young and Right can help :
We evaluate your property transaction and advise on VAT implications based on the nature of supply, whether sale, lease, or off-plan acquisition.
Our experts handle the VAT registration process, ensuring timely access to FTA services, PTN generation, and return filing.
We identify eligible costs, plan your input VAT claims, and ensure that all deductions are legally supported and defensible.
We review contracts, supplier VAT statuses, and property usage to reduce the risk of incorrect tax treatment or denied refunds.
Our team monitors long-term capital asset adjustments, especially when property use shifts between taxable and exempt categories.
We help compile tax credit notes, issue compliant invoices, and prepare records for any FTA audits or inquiries.
With a deep understanding of VAT regulations, our consultants ensure that your commercial real estate transactions meet all statutory obligations while preserving your financial efficiency.F
The VAT on commercial property in the UAE is no longer a background consideration, it’s a crucial part of strategic property investment. By understanding VAT implications, tracking compliance obligations, and managing your taxable supplies, you protect your investment and unlock recoverable value.
Let Young & Right guide you through a compliant, cost-effective VAT journey because in UAE real estate, tax clarity equals financial confidence.
Ensure full compliance with FTA rules while claiming every dirham of input VAT. Let our experts handle your VAT registration, filings, and audits seamlessly.
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