Investors must clear their VAT dues on the sale or rental of commercial properties before proceeding with any transfer of ownership.

However, taxes paid on the property’s expenses during a rent period can be recovered through the tax return of the tenant if he is registered and entitled to a refund. It is also possible to recover the entirety of taxes incurred on construction purchased according to the capital assets system, if the cost of the property is more than Dh5 million.

“With the exception of selling unrented commercial property and rental contracts for commercial units, all other property is either not subject to or exempt from the 5 per cent VAT rate on businesses,” said Khalid Ali Al Bustani, Director-General at the Federal Tax Authority.

“Owners who rent out their estates for residential purposes are not required to register with the Authority. All supplies that fall under an exempt category do not require registration in the tax system.

“Federal Decree Law No. (8) for 2017 on Value Added Tax and its Executive Regulations maintains the competitiveness of real estate investment.” The FTA also clarified that rented commercial property is not considered a supply when sold to taxable persons.