How taxes impact the purchase of real estate in Dubai
The tax system is one of the key factors influencing the economy and financial decisions. In the context of real estate, taxes can impact the attractiveness of purchasing property in different countries and regions.
Recently, Dubai, a rapidly developing city in the UAE, has become a popular destination for real estate investments. Many types of fees that are commonly levied in other countries have been abolished in Dubai, such as property tax for residential property owners. This attracts buyers, as the absence of annual property tax can significantly reduce the cost of property ownership.
However, some tax payments remain mandatory. In this article, we will examine the key tax aspects related to purchasing real estate in Dubai and all the payments that need to be made during the transaction.
1. Registration fee
When purchasing property in Dubai, the buyer is required to pay a registration fee to the Dubai Land Department (DLD). This fee is a one-time payment and is usually 4% of the property value. It is a mandatory payment for registering the transaction. Typically, the buyer covers this fee, but the parties can agree to distribute it between the buyer and seller based on the deal's terms.
This payment serves as a guarantee for the legal protection of property rights. It's important to note that when paying the registration fee, an administrative fee of 540 dirhams must also be paid.
2. Fee for mortgage transactions
When buying a property using a bank mortgage loan, the buyer is required to pay a property registration fee. This cost is 0.25% of the total loan amount plus 290 dirhams. Additionally, the buyer needs to pay a loan processing fee, which is 1% of the loan amount.
3. Fee for issuing the property ownership certificate
After the completion of the transaction, the property owner needs to obtain a property ownership certificate, which confirms the legal ownership of the property. To obtain this certificate, an application needs to be submitted to the local court along with a fee of 70 dollars. The completed document can be obtained within 3 days.
4. Service fees
These are additional expenses to consider after the completion of the transaction and the transfer of property ownership. The Dubai Land Department imposes an annual service fee for property maintenance based on the service and maintenance fee index set by RERA.
This index, which varies depending on the community, determines the exact fee per square foot. The DLD website is the best place to find the most up-to-date information. This amount helps maintain common spaces in the building or community, such as elevators, landscaping, security, pools, etc.
5. Renting out the property
This is one of the most common ways to generate passive income in Dubai. Local legislation does not impose any taxes on either the landlord or the tenant, making it very attractive. All rules regarding the cost of renting a property are agreed upon by the parties and specified in the lease agreement.
If the owner intends to use the services of a real estate agency, which will take care of finding tenants and handling related legal matters, it will cost them 5% of the rental income.
6. Federal Sales and Real Estate Transaction Tax
Starting from January 1, 2018, the country introduced the Federal Tax, known as VAT (Value Added Tax). The law applies to transactions involving the sale and lease of vacant commercial properties. All other real estate transactions are either exempt from tax or not subject to its payment.
7. Agency services
According to the real estate legislation in Dubai, a licensed real estate agent must be involved in the process of buying and selling property. When purchasing property on the primary market, the seller often covers the payment for real estate agent services, with a commission of 2% of the transaction amount. If the property is being purchased on the secondary market, this amount is usually split equally between the buyer and the seller.
We have covered the key tax aspects related to purchasing real estate in Dubai. It is important to note that the tax system may change over time, so it is recommended to consult tax professionals and lawyers to obtain accurate information and guidance before making a property purchase.