Real Estate Tax in UAE: A Clarification on Immovable Property and the Corporate Tax Impact

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The UAE Ministry of Finance recently shed light on the corporate tax implications for foreign companies and non-resident entities regarding income earned from real estate and immovable property within the country. According to the ministry, these entities will be subject to a nine percent corporate tax on such income. This development holds significance as the real estate sector plays a vital role in the UAE economy, contributing substantially to its GDP.

In line with international best practices, the corporate tax law applies to immovable property used in business operations, as well as property held for investment purposes. The implementation of corporate tax commenced on June 1, 2023, and the ministry urges all local and foreign companies to register within one year to avoid penalties.

The ministry’s clarification follows the issuance of Cabinet Decision No. 56 of 2023, which addresses the nexus of non-resident persons in the UAE as per Federal Decree-Law No 47 of 2022.

Younis Haji Al Khoori, the undersecretary of the Ministry of Finance, stated, “The corporate tax treatment of income derived from UAE real estate and other immovable property by foreign juridical persons is in line with international best practice which stipulates that income derived from immovable property is taxable in the country in which such property is located.”

Corporate tax will be calculated based on net income, allowing relevant expenditures meeting the conditions specified in the corporate tax law to be deducted when determining taxable income.

Exemptions and Special Considerations: However, the ministry clarified that income from real estate investments in immovable property, owned directly or through entities like trusts, foundations, or transparent vehicles, by foreign or UAE resident individuals would generally be exempt from corporate tax, provided it is not considered a licensed business activity.

Additionally, real estate investment trusts and other qualifying investment funds may enjoy an exemption from corporate tax on income derived from investments in UAE immovable property, subject to fulfilling specific conditions.

Al Khoori emphasized that this law aims to maintain neutrality between domestic and foreign companies when it comes to earning income from immovable property in the UAE. This clarification provides a clearer understanding of the corporate tax landscape in the real estate sector, offering valuable guidance to businesses operating in this industry.

Remember, it is crucial to consult with tax professionals or legal experts for personalized advice regarding specific tax obligations and exemptions related to real estate investments in the UAE.

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