Real Estate Investment and Corporate Tax for Natural Persons

Real Estate Investment AND Corporate Tax for Natural Persons

As a natural person in the UAE, your income from real estate investment—be it residential apartments, commercial units, holiday homes or parking facilities—can fall entirely outside the scope of Corporate Tax under Cabinet Decision No. 49 of 2023, provided certain criteria are met. Here’s a comprehensive breakdown:

1. Eligibility Criteria

• Natural persons only: Applies exclusively to individuals; corporate entities, LLCs and sole establishments with separate legal personality are not covered.

• Turnover cap: Total annual turnover from real estate investment must remain below AED 1 million in a Gregorian calendar year. Income from other business activities is aggregated for this threshold but real estate investment receipts themselves are excluded when calculating taxable turnover.

• Permitted activities: Only pure investment activities qualify, namely:

1. Sale of land or property

2. Leasing/renting out your real estate investment

3. Sub-leasing to third parties

2. Activities Outside the Exclusion

• Ancillary services: Revenues from property management, maintenance, cleaning, consultancy or facility services are taxable, as these constitute service activities rather than pure investment.

• Licensed operations: If you hold—or are required to hold—a trade licence (for example, a holiday-home rental permit from the Dubai Department of Economy and Tourism), all related income is treated as taxable business revenue, regardless of your turnover level.

• Unlicensed but regulated activities: Undertaking leasing or sales without obtaining a legally mandated license also disqualifies the activity, rendering the receipts taxable once your overall business turnover exceeds AED 1 million.

3. Scope and Definition of Real Estate Investment

• Covered assets: Includes land (agricultural, residential, industrial), buildings, fixtures permanently attached to land or structures (e.g., lighting, built-in HVAC), and any engineered works affixed to the seabed.

• Global footprint: Exemption applies to properties located inside and outside the UAE, so long as the activity aligns with the defined investment criteria.

• Arm’s-length requirement: Transactions with related parties must reflect market rates; below-market or nominal rent/sale values may trigger reassessment and potential inclusion in taxable income.

4. Tax Filing Implications

• Exclusion from Tax Base: Qualifying real estate investment profits are omitted when computing your Corporate Tax liability, effectively reducing your taxable income.

• Non-deductibility of Costs: Conversely, any expenditure or losses directly attributable to the excluded real estate investment cannot be offset against other taxable profits.

• Self-Assessment & Documentation: Under UAE self-assessment rules, you must maintain clear records distinguishing excluded investment income from other taxable business activities to substantiate your position in case of an audit.

Disclaimer: This article serves as a general overview of the real estate investment exclusion from Corporate Tax for natural persons. For definitive guidance, please refer the Federal Tax Authority’s official website. To evaluate your individual circumstances and optimize your tax position, reach out to Al Wahat Accounts & Internal Audit Services, specialists in VAT and Corporate Tax advisory in the UAE.