Time for UAE’s real estate sector to be taxed Developers must bear such a cost depending on the number of units they bring to market

It is time to tax real estate. Taxing the sector is the most straightforward way to curb its supply. Being once a main driver for economic growth in the UAE, it has now turned into a drag on the economy and its diversification efforts.

Here’s why.

The real estate sector has been developed for two main purposes. The first is to turn the various emirates into metropolises, which will allow the country to grow its other sectors and attract residents who will contribute to its economic journey and success. The second is to attract investors.

Investors are being targeted through a range of real estate projects that align with various investing budgets. As for residents, they are targeted through the growth in the number of rental units entering the market every year.

Flat-lining growth

Today though, the market is over-saturated with large-scale development projects and rental units, with real economic growth generated by the real estate sector flattening out in recent years. Expectedly, and given the apparent oversupply in the market, this may as well drop into negative territory in coming years, offsetting any real economic growth from other sectors.

While many would speculate that this is the end of the real estate boom, a more balanced view is that this is rather a market correction.

Such a correction though must not be undermined by allowing a further surge in the supply before a robust evaluation can be undertaken to better understand where the market is today in terms of supply and demand. This must include units that are available for sale as well as units that are available for rent. With the proximity between a few of the emirates, and the convergence of their real estate markets, such a study will need to be conducted at a federal level in addition to studies on a state level.

Balancing out

For a balanced real estate market that will not undermine the UAE’s economic growth, there is no doubt that the real estate committee recently established in Dubai to balance supply and demand is an overdue step in the right direction. Nonetheless, such a step will, sooner rather than latter, need to be taken up a notch from an emirate-level initiative and mandate to a federal-level one.

Parallel to that, the UAE’s government will need to look at options to limit supply in the market as a whole.

One recommended approach would be to introduce a progressive real estate tax. The tax will need to be imposed on real estate developers, on per unit basis, for all units entering the market as a result of their planned projects. The rate must increase as developers pile up unsold and unleased units.

Whether those developers choose to pass the tax on to investors/renters, or not, is a separate matter. However, the presence of numerous developers will probably discourage them from doing so as to not lose market share.

More importantly, the proposed approach will ensure that such a tax does not impact individuals who are building their own houses or purchasing them. It will also mean that the tax will have a smaller impact on developers with better manage supply compared to developers drowning the market with it.

Given the evident excess supply, which has exerted downward pressure on sale prices and rents, the UAE needs to look at the real estate sector from a federal rather than from a state level. Meanwhile, the UAE must seriously consider taxing real estate to control, not cease, its future supply, thus limiting its drag effect on the UAE’s economy. Real estate should no longer be considered a key economic driver. The last thought that I want to leave you with: What should the UAE’s government role be in the real estate market?

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Stop spreading rumours on UAE income tax, warns Ministry of Finance. Misinformation on new direct UAE taxes has been spreading recently on social media

Dubai: A senior official at the Ministry of Finance has refuted unverified news about a new income tax that will be imposed in the UAE.

This past week, social networking sites were flooded with queries from residents who were confused about the alleged upcoming introduction of direct taxes and plans to increase value added tax (VAT).

VAT was introduced in the UAE on 1 January 2018 at a rate of 5 per cent. The VAT aims to provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It also intends to help the government move towards its vision of reducing dependence on oil and other resources as a source of revenue.

The number of businesses that registered for VAT during the first year of implementation reached at least 296,000 companies and tax groups, while tax returns exceeded 650,000.

During the first year of VAT, the authority responded to more than 306,500 phone calls about the tax system, while another 147,000 were answered by e-mail. The total number of queries answered by the Federal tax Authority (FTA) exceeded 453,500.

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We are one of the leading Audit company present in 4 countries. Approved TAX Agent by the Federal Tax Authority and one of the very few Tax Agents who operates with Excise Tax and have a deep understanding for its needs which helps our clients comply with law requirements and Latest FTA Announcements.

UAE’s tax authority urges tax registration for new excise duties Failure to register companies and stocks of taxable items to result in hefty fines in UAE

Dubai: Federal Tax Authority (FTA) on Tuesday urged all manufacturers and importers of items listed in the expanded list of excise duties to register with the Authority for tax compliance ahead of the date of implementation of new taxes.

The UAE introduced the excise tax October 2017 on goods, which are deemed harmful to public health or to the environment in order to reduce consumption and increase government revenues allocated to cover the costs of public services.

According to the previously enacted law, the excise tax rate ranged from 50 to 100 per cent on tobacco and its products, energy drinks and soft drinks.

Earlier this year the government added new items to the list of goods subject to excise such as electronic smoking devices and tools at 100 per cent and sweetened beverages at the rate of 50 per cent excise duties.

The new excise duties will be in addition to the customs duties. The retail prices of these items will be subject to 5 per cent VAT in addition to customs and excise duties.

“We want to make the implementation of excise tax with the newly expanded list a very efficient exercise for businesses and the tax authority. Thus, we urge businesses, both manufacturers and importers of taxable items to register with the tax authority to avoid fines,” said Khalid Ali Al Bustani, FTA’s director general.

FTA said excise duties on the expanded list will be effective as of December 1, 2019, in accordance with the Cabinet and Ministry of Finance decisions and full compliance on registration is mandatory.

The FTA called on importers, producers and stockpilers of electronic smoking devices, liquids used in such devices and sweetened drinks to register for excise tax system as soon as possible.

The authority said that registering for the tax will avoid all stakeholders any fines or obstacles that may arise from late or failed registration.

Minimum price

A minimum price Dh0.40 must be applied per individual cigarette; and a minimum price of Dh0.10 must be applied on water pipe tobacco, ready-to-use tobacco or similar product, according to a decision issued the Ministry of Finance. “We have noticed the use of cheap substitutes that could be more harmful to the health of the users of tobacco products and that is the reason a minimum unit price is set for such products,” said Al Bustani.

Compliance and penalties

FTA’s data base is linked directly to the customs department and the taxable items that falls under excise list have item codes that can be easily identified.

Currently there are 9,000 items that comes under excise list. Following the recent expansion of the list an additional 900 items have been added to the list and the FTA expects up to 4,000 new additions to the list.

Following the implementation of excise duties on the newly added items, importers will not be able clear any of the taxable items through customs if they are not registered with the FTA.

Currently there are 782 companies that are registered with FTA, the deadline for registration for companies is November 30, 2019, and January 15, 2020, is the deadline for registration of stocks.

While the failure to register for excise duties within the deadline will invite a penalty of Dh20,000 and failure to register excess existing stocks of taxable items as of December 1, 2019, ahead of January 15, 2020 could invite a penalty of Dh20,000.

The FTA is in the process of introducing digital tagging for all goods that comes under the purview of excise duties to avoid smuggling, the tax authority said it will also introduce a mobile application that will enable the customers to check the authenticity of the products they consume through a bar code reader.

New excise list and tax rates

Sweetened drinks to be taxed at 50 per cent

Electronic smoking devices and tools taxed at 100 per cent

Liquids used in electronic smoking devices taxed at 100 per cent.

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