Buying a house in the UAE is lucrative, with the potential for high gross rental yields. But have you ever thought of the associated costs? A key concern is how much tax is to pay on rental income in the UAE. Although Emirates has a favourable tax regime, knowing about rental income tax is essential. Scroll down for a complete overview.
How Much Tax to Pay on Rental Income
Taxation in the UAE is favourable for locals and expats as the country does not levy most taxes. For instance, there is no income tax and corporate taxes are very low. The government utilises these taxes for the betterment of society.
A commonly asked question of expats and locals buying a property is, how much tax to pay on rental income in the UAE? Well, the country has no rental income tax for locals and expat residents.
This means any income earned by landlords as rent is not subject to any taxes. However, that is not it. If this motivates you to buy a property here, there is more to consider.
Extra Costs of Buying a Property in the UAE
Although the Emirates does not impose taxes on rental income, buying a property incurs many costs. In addition to the down payment and instalment costs, there are additional and hidden fees. Navigating these costs is crucial to make a worthwhile purchase. Let’s discuss this one by one.
1. Government and Administrative Fees
Government and administrative fees form a significant portion of property buying costs. It is mainly charged by the Dubai Land Department (DLD). For other Emirates, this fee is charged by respective government authorities. Here is a breakdown of these costs:
| Type | Fees |
| DLD Charges | 4% of the property price AED 580 administration fees for apartments and officesAED 430 for land AED 40 for off-plan |
| Property Registration | AED 2,000 and 5% VAT for properties below AED 500,000AED 4,000 and 5% VAT for properties above AED 500,000. |
| Mortgage Registration | 0.25% of the loan and AED 290 (only applicable in case of a mortgage) |
2. Real Estate Agent Fees
Another important cost is real estate agent fees for buying a property in the UAE. You can use the Find Agent section of Property Finder to find reliable real estate agents. Let’s look at these fees:
| Type | Fees |
| Real Estate Agent Fees | 2% of property price and 5% VAT |
| Conveyance Fee | Varies between AED 6,000 and AED 10,000 |
3. Property Valuation Fee
Banks charge a property valuation fee for mortgage approval in the UAE. Here is the fee for buying a property on mortgage:
| Type | Cost |
| Property Valuation Fee | Varies from AED 2,500 to AED 3,500 and 5% VAT |
4. Initial Purchase Costs
The main portion of property buying costs is the initial deposit and upfront payment. The initial deposit is usually 10% of the property purchase price. The initial deposit must be paid to the property owner in advance via cheque to complete the buying process.
5. DEWA Fees
Another important fee is utility connection setup fees charged by the respective authority of the emirate. For instance, in Dubai, the Dubai Electricity and Water Authority (DEWA) is responsible for utility connections. Similarly, Abu Dhabi Distribution Company (ADDC) serves the capital. These charges vary and depend on the connection type.
6. Other Costs of Buying a Property in the UAE
Apart from the aforementioned costs, there are extra costs for buying a house in Dubai and other Emirates. These costs include:
- Bank mortgage fees
- Annual service fees
- Insurance fees
FAQs
There is no rental income tax in the UAE, however, there are property buying and housing fees.
Landlords don’t have to pay property taxes other than a 4% housing fee and other extra costs like DLD registration.
Extra costs include DLD charges, DEWA fees, initial deposit, and annual service charges.
In the UAE, residential property rental income is exempt from VAT. However, VAT applies to commercial rental income at a 5% rate. Landlords must charge VAT and issue tax invoices, while tenants can claim input tax credits if they are VAT-registered.
Buying a property in the UAE offers a luxurious lifestyle and a high return on investment. Therefore, buying a property in the Emirates is worth it.
Now you know everything about how much tax to pay on rental income in the UAE. Although the non-taxable rental income is an advantage, planning for the extra costs of buying a property is essential for avoiding future hassles.
Buyers can review the comprehensive guide to buying a house in Dubai. Also, consider the best places to invest in rental property for a high return on investment.
