The introduction of the new corporate income tax framework in the UAE has significant implications for individuals and businesses actively involved in real estate ventures. It’s crucial to grasp the nuances of how this tax regime operates, particularly for those with vested interests in the real estate sector.
Under the new regulations, individuals and businesses conducting real estate development activities are considered as operating a business enterprise. As a result, they are subject to a nine percent corporate tax on net profits exceeding Dh375,000. What’s worth noting is that this tax applies uniformly to both leasehold and freehold assets, with no differentiation between the two.
However, a distinct scenario arises for those who hold real estate for investment purposes, whether they are foreign or resident individuals acting directly or through trusts or foundations. In such cases, corporate tax is generally not applicable, provided the real estate is not held within a corporate entity. Should a corporate entity own the property and subsequently engage in a sale, capital gains tax would then come into play.
One crucial point to remember is that income derived from immovable property is subject to taxation in the country where the property is located. Therefore, foreign companies and other non-resident legal entities generating income from real estate within the UAE would indeed be liable for taxation.
Additionally, regardless of a company’s income level, the UAE mandates registration for corporate tax purposes, underscoring the importance of compliance within the new tax framework.
It’s worth highlighting a notable exemption granted to real estate investment trusts (REITs). They are not subject to corporate tax on income generated through investments in the UAE, provided they meet specific conditions outlined in the regulations.
For many corporates that have held assets without revaluating them at their market value in their financial records, the revaluation of assets, including immovable, intangible, and financial assets, takes on a pivotal role. Transitional provisions offer these entities the opportunity to opt for revaluation of their assets, a strategic move that can help mitigate potential additional tax liabilities stemming from gains or losses.
In conclusion, navigating the intricate landscape of corporate tax in the UAE is vital for real estate investors. Understanding the tax implications and planning accordingly can lead to more informed investment decisions and ensure compliance within the evolving tax framework.d
