What You Need to Know About Real Estate in the UAE

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If you are interested in buying or renting real estate in UAE, you will need to know about a few key points. These include taxes on rental income and the sale of real estate, freehold and leasehold ownership, and escrow accounts.

Freehold vs leasehold ownership

If you are looking to invest in real estate, you must understand the differences between freehold vs leasehold ownership of property in the UAE. This will help you make an informed decision as well as avoid the common mistakes associated with house buying in Dubai.

The most basic difference between the two is that freehold properties offer total control over the land while leasehold properties give you the rights to a single unit of property. A freehold owner can sell or rent the property as they see fit. On the other hand, a leasehold owner must get approval from the freeholder before doing anything, such as subletting or making major changes to the property.

One of the perks of owning a freehold property is the ability to renovate or resell the property, depending on your needs. In addition, you can also enjoy a variety of visa perks. For instance, you may qualify for a long-term visa in the UAE if you own more than a million dollars worth of freehold property.

Leasehold properties are generally cheaper than their counterparts. They are also easier to maintain. However, you have to have written approval from the freeholder before making any structural changes or modifying the unit.

Freehold properties, on the other hand, are usually more expensive. Although you can purchase freehold properties in the UAE, foreign nationals have to acquire them through agents. Moreover, there are specific restrictions when it comes to renting a freehold property in Dubai.

Taxes on rental income and sale of real estate

If you are looking to purchase a property in the UAE, you need to understand the different tax laws related to real estate. The country has special laws and tax schemes for residents as well as non-residents.

Real estate in Dubai is generally exempt from taxes, but owners are still required to pay a monthly housing fee, also known as a municipality tax. This fee is between AED 60 and AED 150 per square meter of property.

Another form of taxes is Value-added tax (VAT). Companies that earn more than AED 375,000 a year are required to pay VAT.

Immovable property is also taxed, with a transfer fee of two percent on the market value of the immovable property. However, these taxes are not paid if the transaction qualifies for a VAT deduction.

Another important tax is the community maintenance tax. Usually, this is paid by 10-20 AED per square foot. It is used for maintaining the local society.

In Abu Dhabi, landlords are required to pay license fees. Also, there is an annual insurance policy tax.

Unlike other countries, the UAE does not levy income taxes on individuals. But the country does levy a corporate income tax on business income. Businesses that earn more than AED 375,000 yearly are required to pay 9% in corporation tax.

Escrow accounts for real estate

Escrow accounts are an important part of the real estate sector in Dubai. They are used by homebuyers, developers and investors to ensure peace of mind, while at the same time limiting the chances of delays and cancellations.

In order to open an escrow account, a developer must get approval from the Department of Local Development (DLD). After the DLD approves the developer’s project, the developer must start an escrow account. An escrow account will serve as a third party funding medium, and will be set up in a specific bank.

The government of Dubai introduced a new law to regulate escrow accounts. This law came into effect on June 28, 2007. It applies to off-plan sales launched after that date.

Developers who do not adhere to the law are subject to fines, or even imprisonment. Similarly, buyers who discover illegal activities or violations are also able to lodge complaints with the Real Estate Regulatory Agency (RERA).

The money in an escrow account is held by a third-party guardian. When the agreement is fulfilled, the merchant can release the funds to the buyer. However, the funds are only secured when they are held in the escrow account.

Several banks in the UAE have been designated to handle escrow accounts. These include Abu Dhabi Islamic Bank, United Bank Limited, and Emirates NBD.