The UAE Federal Corporate Tax on companies' net profits will be effective in the UAE commencing from 1st June 2023, as declared by the Ministry of Finance. This article seeks to expound the scope of the UAE Corporate Tax on Real Estate.
Applicability of the UAE Corporate Tax on Real Estate
Businesses involved in real estate ownership such as buildings, investments, agencies, and brokerage will be subject to the UAE Corporate Tax. Essentially, the stipulated corporate tax will be applicable if the firm in question holds ownership of a real estate entity, nevertheless, share markets and other small-scale investments made on an individual basis are exempt. Further, temporary foreign entities without a permanent basis in the UAE and working on a specific project are exempt from Corporate Tax. Still more, earnings from dividends, corporate taxes, interest, licensing, and other investments are immune from corporate tax. However, foreign organizations will be susceptible to Corporate Tax if they continuously engage in a licensed commercial activity that generates the benchmarked net revenue within the UAE.
The UAE Corporate Tax’s Impact on Real Estate
The UAE Federal Corporate Tax will be levied on ‘taxable income.’ The taxable income amounts to a business’ accounting operating revenue after subtracting particular items referred to herein as deductibles, as established by the UAE corporation tax code. The Corporate Tax Regime is applicable to businesses engaging in commercial activities, which includes all kinds of activities carried out in the UAE that fall under such a commercial/trade license or permit, and to income received under online freelance permits (if income meets the threshold). UAE businesses that earn more than AED 375,000 per year in taxable income are subject to the corporate tax rate of 9%.
Capital Appreciation from the Sale of Properties
When inflation and desire are high, corporate investors and individuals with investors who hold commercial and or residential identities in the UAE stand to gain financially from the properties' growth in value. Companies operating on the mainland of the United Arab Emirates are required to pay corporate tax on capital gains made from the selling of properties, (if the gains meet the threshold).
Also read more: Will foreign companies be subject to the UAE corporate tax?
Income Derived from Real Estate Development
Corporations that engage in building, managing, or developing real estate are subject to the UAE Corporate Tax. Real estate and land are included in this category, as proceeds from renting, renovating, buying, and selling. With the exception of free zone entities that are restricted to conducting business solely within UAE free zones, the corporate income tax law covers a wide variety of activities and services related to the construction, development, provision, and control of the real estate of UAE-registered businesses.
Income from Operations of Real Estate Agencies
The new UAE Corporate Tax statute applies to brokerage fees, commissions, and other forms of income earned by real estate agents in the UAE. Businesses that provide services which include advisory, judgment issuing, planning, conception, preservation, sale, purchase, usage, and disposal of properties or developments fall under the cognizance of the UAE Corporate Tax.
Income of Individuals from Real Estate Investment Trusts and Crowdfunding Platforms
Crowdfunding sites attract a diverse set of investors, including those who already have stable sources of income (like Real Estate Investment Trusts). The new corporate tax law excludes individuals' earnings, it does not apply to such sources, however, shareholders in the UAE real estate investment portfolios are included (not exempt). Real estate income of individuals is exempt from corporate taxation on the basis that it is deemed to fall under dividends or income first from ownership of shares, along with commissions from property sales, fees ticketed to tenants, rent and the sale of properties that derive from Real Estate Investment Trusts.
Capital Gains of Individuals on the Sale of Properties
If an individual owns a piece of real estate in the UAE in his or her own name, any profit and interest that accrues from the investment are exempt from the UAE Federal Corporate Tax.
Avail Top Advisory Services for Corporate Tax in the UAE
It is essential for UAE real estate businesses to outsource expert advisory services to ensure full compliance with the set Corporate Tax regulations and standards. Top Corporate Tax Consultants in the UAE can seamlessly and effectively guide real estate businesses to avert any probable penalties for noncompliance. So, contact us today and we shall be happy to assist you.
Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.