UAE: Income tax for non-residents in real estate

Foreign buyers of real estate in the UAE should think about the next big decision - should they apply for residency status? After all, when non-resident owners of real estate in the UAE are granted resident status, it means that rental income or transaction profits derived from the property will not be subject to corporate tax.

The Ministry of Finance has unveiled the latest changes to the corporate tax system, and this is what many non-resident investors who have invested in UAE real estate have been arguing about. The laws pertaining to taxes are very clear. Foreign companies and other non-resident legal entities are required to pay UAE corporate tax on income derived from real estate and other immovable property in the UAE. These companies must also register in the UAE for corporate tax purposes. This decision applies to real estate used in business and acquired for investment purposes.

Explaining the guidelines, Younis Haji Al Khouri, Deputy Minister of Finance, said: "The UAE Public Tax Law includes features that respect the principles of international taxation and ensure neutrality between domestic and foreign companies earning income from real estate in the UAE. "

The best route for non-resident individuals

When it comes to non-resident individuals, however, they have the option of trying a different route - applying for residency status. According to Samir Lakhani, CEO of Global Capital Partners, "Real estate visas are available for 2 years for an investment of AED 750,000 and 10 years for from AED 2 million. "This is a great incentive for many to become UAE residents. Non-resident foreigners will be tempted to do so given their corporate tax status. "

The attractiveness of real estate in Dubai and Abu Dhabi for foreign investors

Dubai and Abu Dhabi real estate is attracting foreign investors (and many have acquired residency status associated with their properties).

How offshore companies with assets in the UAE will be processed.

How will offshore companies with assets in the UAE be processed? Offshore companies should be treated as companies in a free economic zone. Under the conditions of suitability for the free economic zone, offshore companies must classify their real estate portfolio into two categories:

• Real estate located in a free economic zone
• Real estate located outside the free economic zone

In the first case, a 0% rate will be applied to income received from other persons operating in the free economic zone in relation to commercial real estate that is used exclusively for business. This does not include properties used for lodging, hotels, serviced apartments, etc. Transactions with persons not operating in a free economic zone and anything in the second category will be subject to a 9% tax. This is applicable regardless of the status of the client.

- Pankaj S. Jain, executive director of AskPankaj Tax Advisors