Why do real estate holding companies need to pay corporate tax and VAT?
As the UAE's corporate and tax rules becoming stricter, real estate investors need to know how VAT and corporation tax affect enterprises that own, rent, or sell real estate.
We have helped over 3,000 clients at CSPZone set up property-holding organizations that are legal, tax-compliant, and beneficial to investors. This book will help you understand how taxes influence your LLC or holding company, whether you own, rent, or sell real estate in the United Arab Emirates.
What is a real estate holding company?
In general, a real estate holding company is an offshore holding structure, a free zone corporation, or a Limited Liability Company (LLC) that only owns and manages real estate.
These organizations are used by both domestic and foreign investors because they offer:
- Keeping assets safe
- Making plans for succession
- Advantages of a visa for shareholders
- Selling shares makes it easier to move property
- Organized financial paperwork for loans and following the rules
The Real Estate VAT in the UAE
The UAE has a 5% VAT, although the way real estate deals are handled depends on the type of property and the deal:
Real Estate for Homes:
- The first sale of a new property (within three years of completion): 0% VAT (not charged)
- Reselling a residential unit: no VAT
- Leasing a residential unit is also free of VAT
- You can't get back VAT on agency, legal, or maintenance services
🏢 Properties for Business:
- Sales and rentals are subject to a 5% VAT
- Going in, you can get back VAT if the business is registered for it
- You need to sign up for VAT if your LLC makes AED 375,000 or more a year
Companies that hold (not lease):
If your LLC owns the property but doesn't rent it out or manage it, and you want to sell it later, VAT may still apply. This depends on:
- The type of property
- When to put a house up for sale
- The company's VAT registration status
CSPZone looks at each situation to decide when to file and if VAT registration is needed.
Real estate holding firms will have to pay corporate tax starting in June 2023
As of June 2023, all businesses in the UAE, even passive holding entities, must file for corporate tax, even if they don't produce any money.
Prices:
- You don't have to pay taxes on net gains up to AED 375,000
- There is a 9% tax on net profits over AED 375,000
Application for Property Tax:
You have to pay corporate tax on both rental revenue and profits from sales.
Companies who work in free zones might not be able to buy the property, but only if:
- The property is in the free zone
- Other free zone businesses give them money
- The business meets all legal standards for "Qualifying Income"
In the real world, this means owning real estate without renting it out and then selling it
"I bought real estate with my LLC. I'm not renting it. In two years, I'll make money by selling it."
Is the business tax due?
Yes. If you sell the property for a profit through your LLC, even if it wasn't rented, you have to pay taxes on that money as business income under UAE corporate tax law.
What about VAT?
- If a home is sold after three years, it is likely not subject to VAT
- There will be a 5% VAT charge if the sale is for business
- You need to register for VAT if your business sells something for more than AED 375,000
Important: Even passive holding corporations have to pay corporate tax unless they meet certain free zone standards.
✅ A list of things that a property-holding LLC must do to stay in compliance
To make sure your real estate firm stays fully compliant, you need to perform the following:
- ✅ If the rental or selling value is more than AED 375,000, you must register for VAT
- ✅ Even if your income is AED 0, you still need to register for corporation tax with the FTA
- ✅ Keep audited financial records for DLD, banks, and the FTA
- ✅ All businesses must file an annual corporation tax return
- ✅ Check to see if the MOA has been translated into Arabic and covers real estate activity
CSPZone helps you handle all of your business's registrations, filings, and translations so that it is secure and compliant from the start.
Things to Avoid Making Mistakes
- Setting up a property LLC and thinking there won't be any taxes
- Selling commercial real estate without registering for VAT
- People don't care about FTA registration because "it's just a holding company"
- Not keeping an eye on rental/turnover VAT limits
- Hiring people to represent you without a license or not registering for taxes at all
📘 The Real Situation: A UK investor sold commercial real estate without paying VAT
Investor: A UK citizen who bought an office space in Business Bay under an LLC
Error: Sold the unit for AED 2.5 million without paying VAT
FTA audit found: The company owed AED 125,000 in VAT and had to pay an AED 10,000 fine
CSPZone answer: Voluntary disclosure was made, VAT was registered retroactively, and plans were made for future transactions to lower the risk of it happening again.
Final thoughts
It makes sense to buy and hold real estate through a UAE LLC, but only if you know what your tax obligations will be ahead of time. If you lease, sell, or just hold property, your business may need to register with the FTA for Corporate Tax and maybe VAT, depending on the type of property and how you make money.
At CSPZone, we offer more than just help you start a business. We give complete legal, tax, and compliance guidance to real estate investors who want to feel safe and at ease.
Also Read: How to Buy Real Estate in Dubai Like Smart Investors Do Using an LLC
📞 Are you ready to make sure your real estate investment is legally safe?
Contact CSPZone right now to set up a meeting to talk about how to set up an LLC, register with the DLD, pay VAT, and follow the rules for corporate taxes.
Professionals should keep your money safe.
