Effect of Corporate Tax on Real Estate in UAE

The real estate sector in the UAE is vigorous and lively as it is significantly engineering intensive, being home to many appealing structures and fluid vegetation to create attractive green spaces within the city settings. The UAE real estate domain deals with high-end residential buildings, sustainable developments, and futuristic design projects, attracting property investors and individuals from different countries. The fact that tax has a bearing on how businesses operate in this area is something that needs to be determined to understand its extent in the determination of net income, investment decisions, and growth of the market.

The emergence of the UAE Corporate Tax and presenting a significant change in the country’s tax structure, particularly the real estate sector can be summarized as follows: The Cabinet Decision No. As far as the Under Identifying Taxation On Real Estate Income In 2023 Act is concerned, be it a company or an individual, they are considered to be a resident even if they are not Kenyan citizens for tax on the revenue made from real estate transactions. Accordingly, in this paper, we cover a wide range of from the top to toe details about the newly introduced tax regime, and its effect on the various categories of participants within the real estate sphere.

UAE Tax Regime and Its Impacts on the Real Estate Sector.

• The individuals or entities who were carrying out property business as a commercial enterprise under the new tax system of the UAE will be taxed 9% of the total net profit which is higher than Dh 375000. This transformation, on the other hand, implies that any real estate-related transactions are now perceived as commercial businesses and hence taxable.

• A particular feature of the tax system is that leasehold and freehold assets are equally classified as corporate assets and thus excluded from both capital gains tax and corporate tax and professionals dealing with real estate businesses are not excluded from the provisions either.

• If real estate is owned for investment purposes by foreign or resident individuals, either directly or through a trust or foundation that generates investment income, it is generally not subject to corporate tax, provided it is not owned by a corporate entity. Even though it may be an individual possession at this level, the proceeds from its sale attract capital gains tax if the asset is owned by a corporate entity.

• The income obtained from immovable property which is the real estate is also liable for taxation in the country it is located in. This implies that foreign companies and non-residents earning any type of revenue from real estate property in the Emirates will be taxed.

• Regardless of the income generated by a company, it is mandatory to register in the UAE for corporate tax purposes. Adhering to tax regulations is essential.

• There is an important stress relief for Real Estate Investment Trusts (REITs), which are not subject to corporate income tax if they comply with the relevant conditions while investing in the UAE. It is this exemption that allows REITs to enjoy the flexibility they need to do their work.

• The reassessment of properties like real estate, intangible properties, and securities, among others, also constitutes major parts. Enterprises entailing assets valuation lower than market prices in their book of accounts are free to revise them using market prices. Making this selection could avoid additional tax on your profits or deductible losses.

Tax Implications for Companies in the Real Estate Sector

Real estate companies within the United Arab Emirates show no tendency to get excluded from Corporate Tax (CT) payments. As per the guidelines raised on the MOF Portal with the frequently asked questions (FAQs), business entities like property management, building construction, development, agency, and brokerage will be compulsorily subjected to the UAE Corporate Tax.

The UAE Corporate Tax law will include revenues coming from brokerages, commissions, or earnings attained by real estate agents within the territory of the UAE. Entities offering services related to property advisory, decision-making, planning, conceptualization, maintenance, sale, purchase, utilization, and disposal also fall under the purview of the UAE Corporate Tax.

UAE resident individuals earning more than AED 375,000 annually within the real estate sector will be subject to a corporate tax rate of 9%.

Tax Liabilities for Entities Operating in Non-Real Estate Sectors

In consideration of the CT role, the owners of businesses often tend to have the sole focus on the primary activities within a company, for example, manufacturing or delivering services.

On the other hand, by the CT Law, any operation undertaken and qualified assets held by legal entities are in this meaning referred to as business activities and business assets, irrespective of the operations in which the legal entities are involved. Consequently, all actions done by any legal entity are looked upon as ” business activities” and, as such, are subject to the UAE CT procedure, unless otherwise specifically exempted.

With the help of high inflation and high-demand situations, being a real estate investor in the UAE will generate a return on investment due to the appreciation of property values. Those companies working in the UAE ought to file taxes for the capital that is paid based on the sales of property.

To illustrate the point, select a UAE that has made AED 500,000 on its licensed activities. Furthermore, the business went through with a sale of a building bought for AED 1,000,000 at AED 1,200,000, which means the company generated AED 200,000. Furthermore, a tax of 10% will be incurred on this amount since it is essentially a business income. However, as soon as we consider those taxable revenues, the final sum will be AED 700,000 which we can get by adding AED 500,000 to AED 200,000.

Waivers from Corporate Tax on Real Estate in UAE

The UAE has some exemptions concerning the tax on corporate real estate in respect of the exemptions and allowances. Incomes from real estate that will not be subjected to corporate tax include:

1. Personal Setting whether it is directly or through a trust, a foundation, or other fiscally transparent subjects.

2. Real estate investment property covered by such non-resident owners as Real Estate Investment Trusts (REITs).

3. Diplomatic or consulate property for land speculation.

Moreover, whereas some property classes are not taxed for VAT of property sales, others are taxed. The residents’ houses are zero-taxed, and for the commercial properties, we have the VAT at approximately ten percent.

Conclusion

All the entities and persons under the corporate income tax law of the UAE are liable to meet all the tax return filing requirements. If you ever run short of knowledge on tax filing and tax compliance, try to consult corporate tax advisors in the UAE. Bizdaddy’s team of specialists in taxation with vast experience offers company tax advisory services and corporate tax services in the UAE, which among others include the giving of corporate tax advice.

Our corporate tax consultants, on the other hand, have expertise ranging from tax reporting, and compliance to tax risk transfer strategies If you are thinking of initiating UAE business tax, we can provide you with assistance, so do not hesitate to you will contact our team of experts in any time!?