VAT on real estate in the UAE: residential vs commercial property

VAT on UAE real estate depends on the property type and the transaction. Sales and leases of commercial property carry 5% VAT. Residential property is generally exempt, so no VAT is charged. The first sale or lease of a new residential building within three years of completion is zero-rated at 0%, and bare land is exempt.

Key takeaways

• Commercial property sales and leases are taxed at the standard 5% rate, and a registered landlord can recover the VAT on its related costs.
• Later sales and leases of residential buildings are exempt: no VAT is charged, and the landlord cannot recover input VAT on related costs.
• The first sale or lease of a new residential building within three years of completion is zero-rated, which lets developers recover construction VAT.
• A residential lease is exempt only if it runs for more than six months or the tenant holds a UAE identity card; hotels and serviced apartments are not residential buildings for VAT.
• Bare land is exempt. A landlord with both commercial and residential units has to split its shared input VAT.

On this page 10 sections

How UAE VAT treats property

UAE value added tax (VAT) is a federal tax at a standard rate of 5%, so the same property rules apply in Dubai, Abu Dhabi and every other emirate. The VAT Decree-Law does not tax property as one category. It sorts each supply of land or buildings into the standard rate, the zero rate or an exemption, and the sorting depends on what the building is and when it is first supplied. The wider rules on the three treatments are set out in the guide to UAE VAT rates, zero-rated and exempt supplies.

Source: Federal Decree-Law No. 8 of 2017 (Articles 45 and 46) and its Executive Regulation, Federal Tax Authority; Ministry of Finance VAT page. Checked 21 Oct 2026.

Residential property: exempt, with a zero-rated first supply

Article 37 of the Executive Regulation defines a residential building as one intended and designed for people to live in. That includes student housing, housing for the armed forces and police, orphanages, nursing homes and rest homes. Hotels, motels, hospitals, hotel apartments and serviced apartments are not residential buildings for VAT.

Two treatments then apply to a residential building. The first sale or lease within three years of completion is zero-rated under Article 45 of the VAT Decree-Law, as is the first supply of a building designed for use by a charity or one converted from non-residential to residential use. Every later sale or lease is exempt under Article 46. Because a zero-rated supply is still a taxable supply, a developer selling new homes charges no VAT to the buyer but recovers the VAT it paid on construction. The Ministry of Finance explains the split this way: the exemption keeps VAT from becoming a cost people cannot recover when they buy their own homes, and the zero rate lets developers recover the VAT they pay on construction.

Residential leases and the six-month test

For a lease, the exemption also depends on the tenancy:

When a residential lease is exempt

Lease of more than 6 months, or a tenant with a UAE identity card

A supply of a residential building, unless it is zero-rated, is exempt from VAT where the lease is for more than six months or the tenant holds an identity card issued by the Federal Authority for Identity and Citizenship; the tenancy period is the contractual period, ignoring any option to extend or renew and any right to end the lease early.

The test looks at the contractual period, so the landlord reads the lease itself and not how long the tenant happens to stay. A short let that fails both limbs of the test, for example a stay of under six months by a tenant with no UAE identity card, is not covered by this exemption.

Commercial property: taxed at 5%

Offices, shops, warehouses and other non-residential buildings are taxed at the standard 5% rate, both when they are sold and when they are let. A landlord or seller that is registered for VAT adds 5% to the price or rent, issues a tax invoice and accounts for the tax in its return. The tax invoice requirements apply to those invoices, and the output VAT is reported in the VAT return.

Commercial rent is a taxable supply, so it counts towards the registration threshold. A resident business must register once its taxable supplies and imports exceed AED 375,000 over the previous 12 months or are expected to exceed it in the next 30 days (Federal Tax Authority, as at November 2026). Exempt residential rent is not a taxable supply, so it is not part of that turnover. The rules and deadlines are in the guide to VAT registration.

For a tenant, VAT on commercial rent is a recoverable input tax if the tenant is VAT-registered and uses the premises to make taxable supplies, and a cost if it cannot recover VAT. The tenant claims it against a valid tax invoice. Where a business buys services for a property from a supplier outside the UAE, the reverse charge mechanism can apply instead.

Mixed-use buildings, hotels and serviced apartments

Real estate rarely falls neatly into one box. Three situations cause most of the confusion:

• Serviced and hotel apartments. They are excluded from the definition of a residential building, so the residential exemption does not apply to them. How VAT applies to a particular stay or lease depends on the supply being made, so check the contract and the Federal Tax Authority (FTA) position before assuming either way.
• Buildings with commercial and residential units. Each supply is classified on its own facts. A landlord that lets both kinds of unit makes taxable and exempt supplies side by side.
• Conversions. The first supply of a building converted from non-residential to residential use is zero-rated, which is a different outcome from a normal later sale of a residential building.

This page does not reproduce the FTA's detailed property guidance, which the editorial team has not reviewed for this article. For any building that mixes uses, or any contract that bundles services with the space, confirm the treatment with the FTA or a licensed tax adviser.

Why the classification matters for input VAT

The headline rate is only half the story. Under Article 54 of the VAT Decree-Law, a business recovers the VAT on costs it uses to make taxable supplies. Zero-rated and 5% supplies are taxable, so a commercial landlord or a developer selling new homes recovers the VAT on fit-out, agents' fees and construction. An exempt supply is not taxable, so a residential landlord cannot recover VAT on related costs and it stays as a cost of owning the property.

Worked example

Same refurbishment cost, different VAT outcome

The landlords and amounts are illustrations, not market figures.

1. Landlord A (a registered commercial landlord) and Landlord B (a residential landlord on qualifying leases) each pay a contractor AED 100,000 plus VAT of AED 100,000 × 5% = AED 5,000, so AED 105,000 in total.
2. Landlord A lets offices at AED 120,000 a year. It charges VAT of AED 120,000 × 5% = AED 6,000, and in its return it deducts the AED 5,000 of input VAT. The refurbishment costs it AED 105,000 minus AED 5,000 = AED 100,000.
3. Landlord B charges no VAT on the exempt rent and cannot recover the AED 5,000, so the refurbishment costs it the full AED 105,000.
4. On identical work, Landlord B carries AED 105,000 minus AED 100,000 = AED 5,000 more cost than Landlord A.

Commercial: AED 5,000 recovered. Residential exempt: AED 5,000 becomes a cost.

A landlord that holds both kinds of property has shared costs, such as management fees, that serve both. Article 55 of the Executive Regulation sets how that shared input VAT is apportioned, and the method changes from the first tax year starting after 1 October 2027. The change is explained in the VAT rates guide.

Bare land

Bare land is land not covered by completed or partially completed buildings or civil engineering works (Article 44 of the Executive Regulation), and its supply is exempt. Once buildings or works are in place, the land is no longer bare for VAT, and the supply is classified by the building on it. A developer should therefore note the stage of the site at the date of the supply.

What to check before you buy, sell or let

1. Identify the building: residential under the Article 37 definition, commercial, or neither (such as a hotel apartment).
2. For a residential building, check the date of completion and whether this is the first supply, to see if the zero rate applies.
3. For a lease, read the contractual term and whether the tenant holds a UAE identity card.
4. Check whether the seller or landlord is VAT-registered, and ask for a valid tax invoice if VAT is charged.
5. If you stop making taxable supplies, for example after selling the last commercial unit, review whether you must deregister for VAT.

E-invoicing is also being introduced for VAT invoices; the current position is in the e-invoicing guide.

Where to go next

Property is one sector within the wider VAT system. For the full list of guides, see the VAT and excise guides page; for who publishes this reference and how it is funded and edited, see About.