Corporate Tax Implications for the Real Estate Sector in the UAE
Real estate players, regardless of whether they are developers, contractors, sub-contractors, or brokers, conducting business in the UAE, are subject to taxation. The real estate industry in the UAE involves various parties, both resident and non-resident, and it’s essential to understand their tax obligations.
In general, resident parties can be classified as either resident juridical persons or resident natural persons. Juridical persons are businesses with separate legal personalities, such as limited liability companies and public joint stock companies. If these companies are registered in a free zone, they are termed free zone juridical persons. Qualifying Free Zone Persons (QFZPs) are free zone individuals who meet specific criteria.
Resident juridical parties, whether based in the UAE or controlled from within the UAE, are subject to corporate tax (CT) on their worldwide taxable income. On the other hand, natural resident persons, such as sole proprietors or freelancers, are only liable for CT on income related to their UAE business activities.
For natural persons operating in the real estate sector, the tax situation is as follows:
- Gross income not exceeding Dh1 million within a year exempts them from corporate tax.
- If their annual business revenue is up to Dh3 million, small business relief from corporate tax is available for tax periods ending on or before December 31, 2026.
- If their annual business revenue exceeds Dh3 million, the first Dh375,000 of taxable income is subject to a zero percent tax rate, while any income exceeding this threshold is taxed at nine percent.
Juridical persons have different tax considerations:
- Juridical persons are not eligible for the Dh1 million gross income exemption. However, they can benefit from small business relief if their annual business revenue is up to Dh3 million for tax periods ending on or before December 31, 2026.
- For juridical persons that do not qualify for small business relief, a zero percent corporate tax rate applies to their first Dh375,000 of taxable income. Any income beyond this amount is taxed at nine percent.
- QFZPs have unique tax implications based on their activities and the parties involved in their transactions. Transactions with other free zone persons may generate Qualifying Income (QI), while transactions with non-free zone persons result in non-qualifying income (NQI), unless it pertains to excluded activities.
Income from domestic or foreign permanent establishments, as well as income from the ownership or exploitation of immovable residential or commercial free zone properties, also has specific tax rates.
In summary, understanding the tax implications for different parties involved in the real estate sector in the UAE is crucial. Natural persons and juridical persons have distinct tax rules, and QFZPs have additional considerations based on their transactions. Non-resident real estate players with a permanent establishment in the UAE are also subject to taxation in certain scenarios. It’s important to consult with tax experts or authorities to ensure compliance with UAE tax laws and regulations.