Immigrants from the UAE: Selling real estate abroad? What you need to know about capital gains tax.

"Dubai: Regardless of where you choose to live or reside around the world, you are likely to come across the term 'capital gains tax', especially when selling your investments back home. Here's everything you need to know about this type of tax and how it can affect you, and even help you save."

“Capital gains tax can be complicated for anyone, especially for those living abroad. The good news is that governments around the world offer several tax incentives to ease the burden,” said Masher Suleiman, a financial planner based in Abu Dhabi who specializes in overseas tax regulations. “Capital gains tax” applies to profits made from the sale of various investments, including real estate, vehicles, jewelry, stocks, bonds, and sometimes even cryptocurrencies, and it applies to those residing abroad.”

For example, as a foreigner, if you bought a house in your home country for $300,000 (1.1 million dirhams) or an equivalent amount in the currency of your country of residence, and sold it for $350,000 (1.3 million dirhams), you would have a capital gain of $50,000 (183,652 dirhams).

Capital gains tax can be complicated for anyone, especially for those living abroad. The good news is that governments around the world offer several tax benefits to ease the burden - Masher Suleiman

Calculating capital gains or losses can be complicated. On the other hand, if you sold the same house for just $275,000 (642,784 dirhams), you would have a capital loss of $25,000 (91,826 dirhams). However, this is just a simplified explanation of the concept of "capital gains tax." "While it's mostly a straightforward calculation, the actual calculations to determine capital gains or losses are more complex. For example, you can use any improvements or repairs to the asset to offset the amount of capital gain," Suleiman added.

“Usually, any time you sell an asset for more than you bought it for, it is considered a capital gain. Except for the UAE and the Persian Gulf, most governments around the world impose a capital gains tax. In most cases, the rate of this tax ranges from 15% to 20% of your income level.”

The most common asset subject to capital gains tax is real estate. This tax is levied in many countries around the world annually or every six months, and the rate depends on the total value of your property. However, there are countries where such a tax does not exist.

In which countries is there no property tax for residents and non-residents? Besides certain property fees, the UAE and other Gulf countries such as Saudi Arabia, Bahrain, Qatar, Kuwait, and Oman do not have capital gains taxes. Additionally, Israel, Georgia, Sri Lanka, Thailand, Cambodia, Fiji, Croatia, Liechtenstein, and Monaco also do not impose such taxes. Apart from the countries mentioned above, capital gains tax is also not levied on the sale of real estate in island nations such as Dominica, the Cayman Islands, Malta, Turks and Caicos, the Cook Islands, the Seychelles, and the Faroe Islands.

How to assess capital gains tax when selling real estate? It is recommended to determine the capital gains tax using software that automatically performs the calculations, or to entrust it to licensed professionals.

“If you want to calculate the figures yourself, there is a basic method for calculating capital gains tax,” explains Indian tax consultant Brijesh Meti. “First, determine the ‘cost basis,’ which includes the purchase price and any fees you paid, then determine your ‘realized amount.’ The ‘realized amount’ is the selling price minus any fees you paid. The next step is simply to subtract what you paid from what you sold it for to determine the difference. This is the capital gain (or loss). Then the tax is calculated.”

Mety further explained that if you have a capital gain, multiply that amount by the applicable tax rate to determine the capital gains tax for the asset. "However, keep in mind that tax rates vary depending on your taxable income and how long you held the asset before selling it," he added.

An example of calculating capital gains tax or loss when selling real estate. Let's say you bought a house for $300,000 (1.1 million dirhams), or the equivalent amount in the currency of your country of residence; this will be your "initial cost." If you invested $60,000 (220,383 dirhams) in renovating your house since you bought it, along with $20,000 (73,461 dirhams) in closing costs, add these to the base cost. The total amount will be $380,000 (1.4 million dirhams). To calculate the profit, subtract the selling price from the "base cost." So, if you sold this house for exactly $400,000 (1.5 million dirhams), you would have a capital gain of $20,000 or 73,461 dirhams ($400,000 - $380,000 = $20,000).

Key takeaways? Depending on the details of the sale, a foreign citizen may or may not have to pay capital gains tax. However, while in theory all capital gains are taxable, governments provide certain exemptions and credits that you can use to avoid paying tax. "Although the calculations of profits or losses from the sale of real estate are quite straightforward, currency exchange rates should be taken into account when selling property abroad," said Suleiman. "This is because governments require all amounts in foreign currency to be converted before calculating profits or losses. Therefore, since exchange rates fluctuate significantly, also consider the rate before buying and selling. The exchange rate used for both the purchase and sale of real estate will be considered the rate on the day unless otherwise specified. In fact, gains and losses can arise from differences in exchange rates.

“In addition, before buying a house in a country with no taxes, also consider the 'stamp duty,' which is another type of tax that the government usually charges when purchasing real estate. This fee is typically charged as a one-time payment, so it doesn't pose financial difficulties,” Suleiman noted.