Dubai and Abu Dhabi property markets have seen an influx of foreign buyers, many of them doing so for the first time. Image Credit: Supplied

Dubai: Overseas buyers of property in the UAE have one serious decision to make – should they apply for resident status?

Because when non-resident property owners in the UAE acquire resident status, it would immediately mean the rental income or transaction gains they make on their real estate assets will not be subject to corporate tax.

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As the Ministry of Finance unveiled the latest provisions under the corporate tax regime, this was the question being debated by the legions of non-resident investors in the UAE real estate space. Because the laws related to the tax are quite clear.

  1. Foreign companies and other ‘non-resident juridicial persons’ will be subject to UAE Corporate Tax on income derived from real estate and other immovable property in the UAE.
  2. These entities will also need to register in the UAE for corporate tax purposes.
  3. The decision applies to immovable property held or used in a business, and that is held for investment purposes.

Explaining these guidelines, Younis Haji Al Khoori, Under-Secretary in the Ministry of Finance, said: “The UAE's Corporate Tax Law incorporates features that honour international taxation principles - and ensures neutrality between domestic and foreign companies earning income from immovable property in the UAE.”

But when it comes to non-resident individuals, there is an options they could try out. Apply for resident status.

According to Sameer Lakhani, Managing Director of Global Capital Partners, “Property visas are available on a 2-year basis for an investment of Dh750,000 and Dh2 million for 10 years.

“This is a great incentive to encourage more to become residents in the UAE. Overseas individuals who are not will be tempted to do so given the corporate tax status.”

The Dubai and Abu Dhabi property markets have been seeing an influx of overseas investors (and many of them would have acquired resident status linked to their property). Abu Dhabi’s Aldar in a recent media briefing spoke of pulling in more first-time investors from overseas into its recent launches.

“The UAE property market has been the biggest beneficiary from the various reforms the authorities have brought on the residency side,” said a property consultant. “The Golden Visa program continues to resonate loud and clear.”

How will offshore companies with property holdings in UAE be treated?
Offshore companies should be treated as free zone companies.
Subject to free zone eligibility conditions, offshore companies need to classify their property portfolio in different buckets

1. Properties located in a free zone and
2. Properties located outside of the free zone.

In the first case, 0 per cent rate will be applicable on income derived from other free zone persons in relation to commercial property. Commercial properties covers that used exclusively for business. It does not include real estate used for residences, hotels, serviced apartments, etc.

Transactions with non- free zone persons and everything under the second category will be subject to 9 per cent tax. And applicable irrespective of the customers' status.

- Pankaj S. Jain, Managing Director of AskPankaj Tax Advisors