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The UAE’s real estate industry is subject to corporate tax

Umm Al-QuwainThe UAE's real estate industry is subject to corporate tax

Different participants in the real estate market, each with a distinct function to play, include developers, contractors, subcontractors, and brokers. The parties fall under the categories of residents and non-residents. Additional categories for resident parties include resident natural people and resident juridical persons.

A juridical person is any developer, contractor, subcontractor, or broker who is registered as a limited liability company, public joint stock company, etc. and who has a distinct legal identity from its owner. A corporation is referred to as a free zone juridical person if it is registered in a free zone. A “Qualifying Free Zone Person (QFZP)” is a free zone resident who satisfies the requirements of a qualified free zone resident. Corporate tax (CT) is levied on the worldwide taxable income of resident juridical parties that are incorporated in the UAE or outside the UAE but are controlled and managed from inside the UAE. 

A natural resident person is one who carries on business in the UAE as a sole establishment, civil corporation, unincorporated partnership, or freelancer without a distinct legal personality from their owners. These people are only required to pay CT on their international income connected to their UAE business.

There are certain exceptions and special regulations in addition to these broad guidelines for applying corporate tax. No matter where they are located, any real estate player—such as a real estate broker or contractor—doing business as a natural person in the UAE is subject to the same tax obligations. 

If their gross income does not reach Dh1 million during a Gregorian year, they are not subject to corporate tax and are not needed to register. For tax periods that conclude before or on December 31, 2026, they are eligible for small business exemption from corporate tax if their annual business revenue during the current and any prior tax periods was up to Dh3 million. If their annual business revenue exceeds Dh3 million, the first Dh375,000 in taxable income is subject to a corporation tax rate of 0%, and any additional income is subject to a corporate tax rate of 9%.

The income from these transactions is regarded as Qualifying Income (QI) if the real estate developers, contractors, subcontractors, brokers, etc. are QFZPs and interact with another free zone person, unless it falls under the categories of excluded activities. However, if they engage in transactions with individuals outside of the free zone, all of their income—aside from that earned from qualifying activities that are not excluded activities—will be non-qualifying income (NQI).

Income from domestic permanent establishments, foreign permanent establishments, and income from ownership or use of movable residential free zone property or movable free zone commercial property where the transaction is carried out with a non-free zone person are not covered by the general principle mentioned earlier. The de-minimis threshold is unaffected by this income of qualified free zone real estate developers, contractors, subcontractors, brokers, etc. It is taxed at a rate of nine percent.

Although the term “exploitation of the property” has not been defined by the law, we can assume that it relates to using property in a way that generates financial gain. This can involve undertaking tasks like leasing out a property, harvesting resources from one, or exploiting one for business purposes. The development of a property is sometimes referred to as the exploitation of property.

The permanent establishment (PE) of non-resident real estate developers, contractors, subcontractors, brokers, etc. will be subject to tax in the UAE like a juridical person, but their income attributable to PE will be subject to tax in the UAE instead of the person’s worldwide income. If a non-resident person receives income from the UAE, there will be no withholding tax applied to it. However, if there is any connection to the UAE, such as an investment in real estate, the non-resident person will be required to register, file a return, and pay the CT in the UAE.

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