VAT Obligations of Property Management Entities
Dubai has always been in the forefront as distinguished for its economy rich in real estate investments and related business activities. Investors and owners of properties in this region also feel it very convenient to have the privilege of an organized and systematic way of getting the real estate transactions done through property management entities. Considering the volume of activities handled by such property management entities and the respective tax implications, FTA has rightly issued a public clarification statement emphasizing their VAT related rights and obligations in detail in order to ensure compliance in every aspect.
Is there a regulatory mandate in Dubai regarding the rights and obligations of Property management entities?
It is to be noted that the Law No. 6 of 2019 which was issued in September 2019 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai, consists of various aspects relating to the responsibilities of property management entities and Dubai Owners associations in Dubai. With reference to this regulation the applicability of VAT on transactions handled by such entities are to be assessed to follow the proper accounting treatments. Also, FTA in its clarification emphasizes that It is required to analyze whether there is a taxable supply of service being performed to arrive at the VAT responsibilities and VAT on real estate companies.
What are the legal implications regarding VAT registration of Owners associations in Dubai?
As per the Law No. 6 of 2019, all the rights and obligations of Owners associations in Dubai got handed down to respective property management entities and this resulted in a point that such owners’ associations were no longer making any taxable supplies. In the cases where any such owners’ associations were already VAT registered, they had to ensure VAT deregistration before December 2019 which was the timeline prescribed in the regulation. This regulatory requirement was introduced as applicable to all the real estate projects and jointly owned properties in Dubai, including the ones in free zones.
How are Property management entities defined as per UAE regulation?
As per the regulation, property management entities are the ones who are in charge for taking care of the common facilities or parts in jointly owned real estate properties. The type of such entities may differ on a case to case basis. For example, developers of the real estate properties themselves may act as management entities in some cases or may be sometimes they may hire other management companies to perform the duties of a management entity. Quite often, such management entities collect service charges from the owners of units/flats of the jointly owned properties in exchange for providing their managing services.
Is VAT registration required for property management entities?
Now that the management entities are in charge of managing the jointly owned properties based on the law 6 of 2019, it entails that the services performed by them come under the classification of taxable supplies and hence VAT is applicable at the standard rate of 5%. By default, VAT registration rules would apply to the property management entities as well and they have to register themselves for VAT based on the registration threshold rules as applicable to them.
What are the legal obligations of property management entities with respect to UAE VAT?
Similar to any other VAT registered entities, management entities should issue valid tax invoices for the considerations they receive against the services performed by them. Also the formats of the tax invoices and tax credit notes issued have to be in the prescribed format as per the VAT regulation. The registered management entities will have to file VAT return on due dates mandated by FTA and incomes received against their services have to be reported correctly in the VAT return. Also the entities can claim input tax credit for the VAT expenses incurred for making the taxable supplies.
CDA provides VAT accounting and reporting services for property management businesses
CDA have certified VAT experts having years of experience dealing with complex business transactions and offering bespoke VAT accounting services across various companies in UAE. We have been successfully part of many VAT implementation projects in the region including the ones in the real estate sector and we can proudly demonstrate our journey as trusted VAT advisors of multiple business enterprises in recent years since the introduction of VAT in UAE. We are happy to help you in clarifying your queries with respect to VAT treatments to be applied on your routine business activities or to analyze the VAT implications as applicable to the specific business transactions you may be currently engaged in. Reach out to us to discuss further on this in a free one-hour consultation call.