VAT on Real Estate in UAE Residential vs Commercial

Overview

In the UAE, VAT applies differently to residential, commercial, and mixed-use properties. The Federal Tax Authority (FTA) has specific rules on when VAT is charged, when it’s zero-rated, and when it’s exempt. Misunderstanding these rules can lead to penalties, rejected VAT claims, and disputes with buyers or tenants.

VAT on Residential Properties:

First Supply of New Residential Property

• VAT Rate: 0% (Zero-rated)
• Applies only to the first sale or lease of a new residential property within 3 years of completion
• Seller/landlord can recover input VAT on construction and related costs

Subsequent Sales or Rentals

• VAT Rate: Exempt (No VAT charged)
• Supplier cannot recover input VAT on expenses

Residential Definition:

• Place designed for human occupation
• Includes apartments, villas, and staff accommodations
• Excludes hotels, serviced apartments, and short-term accommodation

VAT on Commercial Properties:

Sales and Rentals

• VAT Rate: 5% (Standard-rated)
• Applies to offices, warehouses, retail units, and industrial spaces
• Seller/landlord can recover input VAT on related expenses

Commercial Definition:

• Any property that is not residential
• Includes hotels, serviced apartments, malls, offices, and shops. 

Mixed-Use Properties:

For properties with both residential and commercial components:

• VAT must be applied proportionally
• Input VAT is partially recoverable using apportionment methods

Example:
A building with retail shops on the ground floor (commercial) and apartments above (residential) will have VAT applied to the shops but not to the apartments.

Hotels & Serviced Apartments

• Treated as commercial property
• 5% VAT applies on sales and short-term rentals
• Long-term leases (over 6 months) with registered tenants may qualify as residential for VAT purposes

VAT for Real Estate Developers

• Can recover input VAT on construction costs for zero-rated supplies
• Must charge 5% VAT on commercial projects
• Residential projects are zero-rated only for the first supply

Most Searched Real Estate VAT Questions (2026)

Q: Is VAT applicable on off-plan property sales?
A: Yes, 5% VAT applies to commercial off-plan sales; residential off-plan sales for first supply are zero-rated.

Q: Do landlords of residential property need to register for VAT?
A: Not if they only make exempt supplies and do not cross the voluntary threshold.

Q: Can I claim VAT on property maintenance?
A: Yes, if it relates to taxable supplies (e.g., commercial property).

Q: Is staff accommodation taxable?
A: If provided free or as part of employment, it’s usually treated as residential and exempt from VAT.

Common Mistakes to Avoid

• Charging VAT on exempt residential rentals
• Claiming input VAT on exempt-only activities
• Not adjusting VAT when a property changes from commercial to residential use
• Misclassifying short-term accommodation

Conclusion

VAT rules for UAE real estate depend on the property type and transaction nature. Understanding whether a property is residential, commercial, or mixed-use is critical to charging the right VAT and recovering eligible input tax.

Need Support With Real Estate VAT?

At Think Biz Management Consultancies, we help you:

• Classify your property correctly for VAT
• Apply zero-rating or exemptions as per FTA rules
• Claim maximum eligible input VAT
• Avoid penalties and disputes with tenants or buyers
• Handle VAT for off-plan, construction, and leasing

Contact us today for a free consultation.
Let our VAT experts make sure your real estate transactions stay fully compliant.