VAT on UAE Real Estate: Residential, Commercial & Mixed-Use

UAE VAT on real estate turns on two questions: what kind of property it is, and whether this is its first supply. The first sale or lease of a new residential building within three years of completion is zero-rated, later residential sales and long leases are exempt, bare land is exempt, and commercial property, whether sold or leased, is taxed at the standard 5% rate. Mixed-use buildings are split by use, and the split decides how much VAT the owner can recover.

Key takeaways

New residential (first supply within 3 years of completion): 0%. This applies to a sale or a lease, and the developer can recover VAT on its build costs in full.
Existing residential (every supply after the first): exempt. No VAT is charged, and VAT on related costs cannot be recovered.
Commercial property (offices, retail, warehouses, covered land): 5% on both sales and leases, with full recovery of related input tax.
Hotel apartments and serviced apartments are not residential buildings. Since 15 November 2024 the Executive Regulation has said so expressly, so taxable suppliers charge 5%.
Mixed-use buildings are apportioned, both the sale price and the VAT on shared running costs.
2026 changes affect recovery, not rates. Input tax verification duties begin on 1 October 2026, and a new supplies-based apportionment formula has been enacted for tax years starting after 1 October 2027.

The legal framework in one paragraph

Three sources govern. Federal Decree-Law No. 8 of 2017 (the VAT Law) sets the 5% standard rate in Article 3. Article 45 zero-rates the first supply of residential, charitable and converted residential buildings, and Article 46 exempts other residential supplies and bare land. The Executive Regulation (Cabinet Decision No. 52 of 2017, as amended most recently by Cabinet Decision No. 149 of 2026) defines the terms in Articles 37 to 44 and sets out apportionment and the Capital Assets Scheme in Articles 55 to 58. The FTA's Real Estate VAT Guide (VATGRE1) explains how the FTA applies them. Where the Regulation has changed since the guide's April 2021 edition, the Regulation prevails.

A sale or lease of real estate is a supply of goods for VAT purposes, which drives the date-of-supply and reverse-charge points below.

Decision table: property type × transaction → VAT treatment

|---|---|---|---|

| Hotel, motel, hotel apartment, serviced apartment | 5% | 5% | Yes |

| Commercial building (office, retail, industrial) | 5% | 5% | Yes |

| Covered land (civil works or construction above foundation level) | 5% | 5% | Yes |

| Service charges from a developer, owners' association or management entity | n/a | 5% | Yes |

Residential property

What counts as a "residential building"

Article 37 of the Executive Regulation defines a residential building as one intended and designed for human occupation: a principal place of residence, student, armed forces and police accommodation, and orphanages, nursing homes and rest homes. A home office, garage or garden does not change that.

It excludes anything movable, hotels, motels, bed-and-breakfasts, hospitals, and buildings constructed or converted without lawful authority. Since Cabinet Decision No. 100 of 2024 took effect on 15 November 2024, it also excludes "a hotel apartment or serviced apartment or the like". The FTA's Public Clarification VATP040 confirms the result: such units qualify for neither zero-rating nor exemption and carry 5% VAT when a taxable person supplies them.

First supply: zero-rated within three years

Under Article 45(9) of the VAT Law, the first supply of a residential building within three years of completion is zero-rated, whether it is a sale or a lease, of the whole building or part of it. The FTA guide makes three practical points:

Completion is normally the date a suitably qualified party certifies the building as complete. If people move in earlier, the occupation date counts as completion.
Who buys doesn't matter. Zero-rating applies whether the customer is registered, unregistered or a related party.
Off-plan purchases from a developer, and purchases of partly completed residential buildings, are zero-rated as a future supply of a residential building.

Only one supply can be the first. If a developer's first supply of a new unit is a lease, that lease is the zero-rated supply, and a later sale of the same unit is exempt, even within the three years. Article 52(4) of the Executive Regulation protects the developer here: input tax on a zero-rated first lease can be recovered in full, whatever the plans for later exempt supplies.

Subsequent supplies: exempt

Every residential supply after the first is exempt under Article 46(2) of the VAT Law. That covers resales and ongoing leases. Article 43 of the Executive Regulation limits the exemption for leases to cases where the lease is more than six months or the tenant holds an Emirates ID. The contractual term is what counts: renewal options and early-termination rights are ignored. Short lets to tenants without an Emirates ID fall outside the exemption.

The cost of exemption is lost recovery: VAT on agents' fees, legal fees and upkeep linked to exempt residential supplies can't be reclaimed.

Converted buildings

A building converted into residential use is zero-rated on its first supply if the supply takes place within three years of the conversion being completed, and no part of the original building was used as, or formed part of, a residential building in the five years before work began (Article 39).

Commercial property: 5% on sales and leases

Commercial real estate is any land or building that is not residential, not a charitable building and not bare land. Its sale or lease is taxed at 5%. Where the price is paid in instalments, VAT is due on each one. Related input tax is recoverable in full.

A special process applies to commercial property resales by anyone other than the developer. The seller invoices as usual, but before the Land Department registers the transfer the VAT must be paid to the FTA as a "Commercial Property Sale" miscellaneous payment on the e-Services portal, as set out in the FTA's VAT Payment User Guide for Commercial Property Buyers. The seller reports the output tax on its return and then adjusts for it, so the tax isn't paid twice. It does not apply to developer sales, leases, or a tenanted building sold to a registered buyer as a business transfer.

For non-resident landlords, the FTA guide notes a nil registration threshold and no reverse charge, because UAE property is goods already located in the UAE.

Bare land

Supplies of bare land, whether by sale or lease, are exempt (Article 46(3)). Article 44 of the Executive Regulation defines bare land as land not covered by completed or partially completed buildings or civil engineering works. The FTA's working lines are:

Construction counts as a partially completed building once it has progressed beyond foundation level.
Roads, bridges and pipes that break the surface to serve the plot are civil engineering works. Underground pipes with no access from the plot are not.
Fencing and temporary site cabins do not make land "covered"; fixed farm irrigation usually does.

If a tenant develops leased bare land, the landlord's later periodic supplies become standard-rated once the land is covered. A registered Musataha, by contrast, is treated like a sale, so its original treatment stands.

Charitable buildings

A building specifically designed for use by a charity, and used solely for a relevant charitable activity, is zero-rated on its first sale or lease (Article 45(10) of the VAT Law and Article 38 of the Executive Regulation). Unlike new homes, there is no three-year limit. According to the FTA guide, only charities named in the relevant Cabinet decision qualify. Later supplies of the building are standard-rated at 5%, not exempt.

Mixed-use buildings and apportionment

Splitting the price

A mixed-use development has distinct areas with different VAT treatments, such as shops on the ground floor, offices in the middle and flats above. When a single unit is sold, its own use decides the rate. When the whole building is sold, the price has to be apportioned: the residential share is zero-rated on a first supply and exempt otherwise, and the commercial share is taxed at 5%. The FTA guide doesn't prescribe a method, so use a reasonable, documented basis such as an independent valuation or floor area, and apply it consistently.

Recovering VAT on development costs

According to the FTA guide, VAT on constructing a mixed-use development should be recoverable in full, since the commercial parts are taxable and the residential parts support a zero-rated first supply.

Recovering VAT on running costs

After the first supply, recovery depends on use, in three steps:

1. Attribute directly. VAT on costs used only for the commercial units, such as fitting out a shop, is recoverable. VAT on costs used only for the exempt residential units is not.

2. Apportion the residual. VAT on shared costs, such as roof repairs, lifts or façade works, is apportioned under Article 55 of the Executive Regulation. The recovery percentage is rounded to the nearest whole number, and the FTA says the simplified calculation in its apportionment guide (VATGIT1) still applies.

3. Run the annual wash-up. Recalculate for the whole tax year in the first period of the next year. If the result differs from actual use by more than AED 250,000, make an actual-use adjustment (Article 55(11)).

A landlord whose standard method gives a distorted result can apply to the FTA to use a special method. The FTA guide describes a floor-space method for businesses that sell or let both residential and commercial property.

A change already enacted for 2027

Cabinet Decision No. 149 of 2026 has amended Article 55 again. For tax years starting after 1 October 2027, the standard method becomes supplies-based: the percentage of taxable (recoverable) supplies to total supplies, excluding supplies of capital assets. For mixed-use landlords, recovery will then track the commercial-to-residential rent mix, which is worth modelling now.

The Capital Assets Scheme

A building or part of a building costing AED 5,000,000 or more (excluding VAT), with a useful life of at least 10 years, is a capital asset (Article 57). Staged payments to buy, build, extend or refurbish a building are added together towards that figure. The input tax is then monitored over 10 consecutive years for buildings (5 for other assets), starting on the day the owner first uses the asset in the business (Article 58). Each year, the owner compares that year's recovery percentage (Q) with Year 1's percentage (X) and adjusts one-tenth of the original input tax by the difference.

Worked example (illustrative figures; the rules are sourced). A VAT-registered company buys an office building for AED 20,000,000 plus 5% VAT of AED 1,000,000 (W). In Year 1 it lets the whole building commercially and recovers 100% (X). In Year 4 it converts 30% of the floor space to long-term residential lettings, which are exempt, so its recovery percentage for the building falls to 70% (Q).

R = 1/10 × W × Q = 100,000 × 70% = AED 70,000
Z = 1/10 × W × X = 100,000 × 100% = AED 100,000
R is less than Z, so the company reduces its input tax by AED 30,000 for Year 4. The same check is repeated in each remaining year of the 10-year period.

For the whole-building price split, suppose a developer sells a newly completed tower in one transaction for AED 60,000,000, and an independent valuation attributes AED 36,000,000 to the offices and AED 24,000,000 to flats that have never been supplied. VAT is 5% × 36,000,000 = AED 1,800,000 on the commercial share. The residential share is zero-rated because it is the first supply within three years of completion.

Stock held for resale is not a capital asset (Article 57(2)), so a developer building to sell is outside the scheme.

The new-residence refund for UAE nationals

Under Article 75 of the VAT Law and Article 66 of the Executive Regulation, a UAE national who builds, or commissions the building of, a new home on land they own can reclaim VAT on the construction costs. The conditions are:

The claimant must be a natural person who is a UAE national.
The building must be newly constructed and used solely as a residence for the claimant or their family. It can't be a guest house, hotel or anything similar.
The claim must be filed on the FTA e-Services portal within 12 months of completion. Completion is the earlier of occupation and certification by the competent authority.

Contractor services (builders, architects and engineers) and building materials normally built into a home are eligible. Furniture, electrical appliances and landscaping are not. If the home is later used for another purpose, the FTA can reclaim the refund.

Developers and off-plan sales

Date of supply. VAT becomes due at the earliest trigger. For off-plan contracts with instalments, the continuous-supply rule in Article 26 of the VAT Law applies: the date is the earliest of invoice, payment due date or receipt of payment. For commercial units, VAT is due on each instalment.
Cancelled projects. Refunded deposits need a tax credit note; a retained payment may be consideration for a 5% service.
Infrastructure. A master developer's VAT on communal roads and utilities is an overhead: fully recoverable if its sales are taxable, apportioned if some plots are sold as exempt bare land.

2025–2026 legislative changes that matter for property

Federal Decree-Law No. 16 of 2025 (effective 1 January 2026) left the property categories unchanged. Per the Ministry of Finance, it did three things: removed self-invoicing under the reverse charge, set a five-year limit for reclaiming excess refundable tax, and added Article 54 (bis), which lets the FTA deny input tax linked to tax evasion.
FTA Decision No. 13 of 2026 (issued 22 July 2026, effective 1 October 2026) sets the checks a registrant must make on suppliers and supplies before deducting input tax. These include identity, place-of-business and risk checks, plus bank-account confirmation for suppliers above AED 375,000 a year. Supplies under AED 10,000 are excluded unless a supplier's annual total exceeds AED 100,000.
Cabinet Decision No. 149 of 2026 (effective 1 October 2026) amends the Executive Regulation. Its supplies-based apportionment formula applies from tax years starting after 1 October 2027.

Common mistakes

Treating all residential property as exempt. A new home's first supply is zero-rated; getting this wrong forfeits the developer's recovery.
Zero-rating a second supply. Only one supply can be the first. A resale or re-let inside the three-year window is exempt.
Treating hotel or serviced apartments as residential. Since November 2024 they are expressly excluded.
Recovering VAT on residential upkeep. Costs linked to exempt residential lettings are blocked.
Calling serviced plots "bare". Surface-breaking utilities or building above foundation level make land covered, taxed at 5%.
Ignoring the Capital Assets Scheme after changing a building's use within 10 years.

When to get professional help

Simple cases rarely need more than the table above. Mixed-use portfolios, changes of use, whole-building sales and off-plan projects are different, because one mis-classification can cost input tax that is hard to recover. At Next Tax Source, our FTA-registered tax agent reviews and signs off every UAE VAT position we prepare. You can see our UAE practice on the UAE country page, check whether you need to register using UAE VAT registration for businesses, estimate figures with the UAE calculators, or book a consultation if your facts are unusual. See also our UAE VAT return walkthrough.

This article is general information, not advice for your circumstances.

Sources

Frequently asked questions

Is VAT charged on residential property in the UAE?+

It depends on whether the supply is the first one. The first sale or lease of a new residential building within three years of its completion is zero-rated, so no VAT is charged but the developer can still recover VAT on its costs. Every later residential sale or lease is exempt, provided a lease is longer than six months or the tenant holds an Emirates ID. Hotel apartments and serviced apartments are not residential buildings and carry 5% VAT when supplied by a taxable person.

Do I pay VAT when buying an off-plan apartment in Dubai?+

Generally no. The FTA's Real Estate VAT Guide treats the purchase of a residential unit off plan from the developer, or of a partly completed residential building, as zero-rated, because it is the first supply of a residential building. The zero rate applies whatever the buyer's VAT status. If the unit is a hotel apartment or serviced apartment, or the building is commercial, the purchase is standard-rated at 5% instead. Other costs of buying, such as agents' fees, are taxed normally.

What VAT applies to commercial property in the UAE?+

The sale or lease of commercial property, meaning anything that is not residential, a qualifying charitable building or bare land, is taxed at the standard rate of 5%. VAT is due on each instalment where the price is paid in stages. When a commercial property is resold by anyone other than its developer, the VAT must be paid to the FTA through the e-Services portal before the Land Department will register the transfer. The seller still reports the output tax and then adjusts for it, so the tax is not paid twice.

How is VAT handled on a mixed-use building in the UAE?+

Each part follows its own treatment. A commercial unit is taxed at 5%, and a residential unit is zero-rated on its first supply and exempt afterwards. When the whole building is sold, the price must be apportioned on a reasonable, documented basis, such as an independent valuation. For running costs, VAT is first attributed directly to the commercial or residential parts, and VAT on shared costs is apportioned under Article 55 of the Executive Regulation, with an annual wash-up. The FTA also recognises a floor-space special method, which requires its approval.

Is the sale of land subject to VAT in the UAE?+

The sale or lease of bare land is exempt. Bare land means land not covered by completed or partially completed buildings or by civil engineering works. The FTA treats construction beyond foundation level, and surface-breaking pipes or roads on the plot, as making land covered. Covered land is taxed at 5%. Fencing and temporary movable cabins do not change bare land into covered land. Because bare land is exempt, VAT on related costs such as agents' and legal fees cannot be recovered.

What is the Capital Assets Scheme for UAE property?+

A building, or part of one, costing AED 5,000,000 or more excluding VAT, with a useful life of at least ten years, is a capital asset. Its input tax is monitored for ten consecutive years from first use in the business. Each year the owner compares that year's recovery percentage with Year 1's percentage and adjusts one-tenth of the original VAT by the difference. The scheme mainly affects owners who change a building's use, for example from commercial to exempt residential letting. Stock held for resale is excluded.

Can UAE nationals reclaim VAT on building a new home?+

Yes. A UAE national who builds, or commissions, a new home on land they own can claim back VAT on contractor services and on building materials normally built into a home, such as doors, flooring, sanitary ware and fitted kitchens. Furniture, electrical appliances and landscaping are excluded. The home must be used solely as a residence for the claimant's family, and the claim must be filed on the FTA e-Services portal within 12 months of completion, which is the earlier of occupation and official certification.

Did the 2026 VAT amendments change real estate VAT in the UAE?+

Not the property categories. Federal Decree-Law No. 16 of 2025, effective 1 January 2026, left the zero-rating and exemption rules unchanged. It did add a five-year limit on reclaiming excess refundable tax and a power for the FTA to deny input tax linked to evasion. FTA Decision No. 13 of 2026, effective 1 October 2026, requires supplier and supply checks before input tax is deducted. Cabinet Decision No. 149 of 2026 introduces a supplies-based apportionment formula for tax years starting after 1 October 2027.