Real estate is one of the most misunderstood areas of UAE VAT. The rules differ sharply depending on whether the property is residential or commercial, whether it's a first sale or a subsequent transaction, and whether it's being sold or leased.
Residential property
- First sale of a new residential property within 3 years of completion: zero-rated (0%). The developer can recover all input VAT on construction.
- Subsequent sales and all residential leases: exempt. No VAT is charged, and landlords cannot recover input VAT on related costs.
Commercial property
- Sale or lease of commercial property: standard-rated at 5%.
- This includes offices, retail units, warehouses, hotels, and serviced apartments operated as hotel apartments.
Bare land vs developed land
Bare land — defined as land that has not been covered by completed, partially completed or civil engineering works — is exempt. Once any meaningful development has taken place it becomes commercial land and the sale is standard-rated.
Mixed-use buildings
Where a single building has both residential and commercial parts (for example a tower with retail on the ground floor and apartments above), the supply is split. The residential element follows residential rules; the commercial element is standard-rated. Input VAT on shared costs must be apportioned.
Owners' associations and service charges
Service charges levied by an owners' association on a residential building are exempt. On a commercial building they are standard-rated. Many associations get this wrong and end up with significant assessments at audit.
Practical example
A developer sells a brand-new apartment for AED 2,000,000. Because it is the first supply within 3 years of completion, the sale is zero-rated — the buyer pays AED 2,000,000 with no VAT on top, and the developer recovers all the VAT it paid during construction. If the same apartment is resold two years later it falls outside VAT entirely (exempt), so neither buyer nor seller deals with VAT.
Tips for property investors
- Always confirm whether a commercial unit's quoted price is "VAT inclusive" or "plus VAT" — a 5% miscalculation on a AED 5m unit is AED 250,000.
- Keep documentary evidence of the completion date for any "first supply" zero-rating claim.
- If you own commercial property, you can usually recover the VAT on related expenses — don't leave that money on the table.
