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UAE – Federal Tax Authority publishes new guide on Real Estate Investment Income for Natural Persons
Yesterday, on October 24, 2024, the UAE Federal Tax Authority (FTA) published a new guide titled “Real Estate Investment for Natural Persons Corporate Tax Guide – CTGREI1”. The guidance is not a legally binding document. However, it aims to provide assistance in understanding the tax implications for natural persons who derive income from (private) Real Estate Investment. It outlines the circumstances under which (private) Real Estate Investment Income does not constitute a taxable business or business activity of a natural person, and hence shall be excluded from the scope of corporate tax, in line with the Cabinet Decision No. 49 of 2023.
Cabinet Decision No. 49 of 2023 defines (private) Real Estate Investment as any investment activity conducted by a natural person related directly or indirectly to the sale, leasing, sub-leasing, and renting of land or real estate property in the UAE that is not conducted, or does not require to be conducted, through a license from a licensing authority. The guidance explains this definition in more detail and provides several practical examples. According to the guide, a real estate property can include residential property, commercial property, showrooms, warehouses and storage rooms, parking lots and garages, etc. It may also include structures, fixtures or similar equipment that are permanently attached to the property. It is irrelevant whether the third party (e.g. the tenant) will use the real state property for business or non-business purposes. Not relevant either is the size, quantity or value of the real estate property or the amount of income derived. Even the location of the property – in the UAE and/or outside the UAE – is not relevant for the exclusion from the corporate tax as far as the selling/leasing/renting/sub-leasing of the real state property (the license-free activity itself) is conducted in the UAE.
If a natural person owns land or real estate property in a non-business capacity and also operates a business or business activity requiring a License (for example, online business), he/she should be able to clearly demonstrate the basis for separating real estate income earned in a non-business capacity (private Real Estate Investment) from their other business or business activities to benefit from the exclusion. Expenditures for the respective activity must also be determined exactly, because expenditures that relate directly or indirectly to private Real Estate Investment income are – consequently – not deductible for Corporate Tax purposes.
The guide of the FTA confirms once again that non-business income for natural persons (individuals) such as income from renting a real estate property shall be excluded from the scope of corporate tax. However, the guide also clearly points out that the Corporate Tax Law and its implementing decisions do not create a requirement for natural persons to obtain a license to conduct a business or business activity. Rather, this is mandated by the relevant Licensing Authority and the relevant legislation through which it operates. Therefore, before starting with private Real Estate Investment, it must be ensured that this investment does not require a license or permission to conduct Business.
For any questions related to the Corporate Tax in the UAE please contact our dedicated experts at SCHLÜTER GRAF.