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Dubai: Overseas buyers buying property in the UAE have a serious decision to make – should they apply for residency?
Because when non-resident property owners in the UAE obtain residency, it will immediately mean that they will not be subject to corporate tax on rental income or trading gains from their real estate assets.
This is a matter of debate among many non-resident investors in the UAE real estate sector as the Ministry of Finance publishes the latest regulations on the corporate tax regime. Because the laws related to taxation are very clear.
- Foreign companies and other “non-resident legal persons” will be subject to UAE corporate tax on income derived from real estate and other immovable property in the UAE.
- These entities are also required to be registered for corporate tax in the UAE.
- The decision applies to real property held or used by businesses, as well as real property held for investment purposes.
Explaining the guidelines, Undersecretary of Finance Younis Haji Al Khoori said: “The UAE’s corporate tax laws are characterized by respect for international taxation principles and ensuring neutrality between domestic and foreign companies that generate income from immovable properties in the UAE.”
But for non-resident individuals, there is an option they can try. Apply for residency.
According to Sameer Lakhani, Managing Director of Global Capital Partners, “Investments of Dh750,000 and Dh2 million get a 2-year property visa for 10 years.
“Furthermore, domestic companies that are not licensed as property developers can invest in real estate – and do not have to pay corporate tax on rental income and capital gains from the sale of assets.
“This is a huge incentive to encourage more people to become UAE residents. Individuals abroad who are not doing so will be tempted given the corporate tax situation.”
The Dubai and Abu Dhabi real estate markets have been witnessing an influx of overseas investors (many of whom will be granted residency status linked to their properties). Abu Dhabi-based Aldar spoke at a recent media briefing about attracting more first-time investors from overseas for its recent launch.
“The UAE real estate market has been the biggest beneficiary of the various reforms the authorities have introduced in terms of residency,” said a real estate consultant. “The Golden Visa scheme continues to resonate loud and clear.”
What will happen to offshore companies holding property in the UAE?
According to the free zone qualification conditions, offshore companies need to divide their asset portfolio into different categories
1. Property located in a free zone and
2. Property located outside the free zone.
In the first case, the 0% rate will apply to commercial property-related income from other free zone persons. Commercial property includes property used exclusively for business. It excludes real estate used for residences, hotels, serviced apartments, etc.
Transactions with non-free zone persons and all transactions under the second category are subject to a 9% tax. And it applies regardless of the client’s identity.
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