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Guide on Dubai Rental Taxes, the Municipality Housing Fee, and VAT on Rent

When you own, keep, and rent out real estate in Dubai, two types of taxes apply.

The first one is the 5% Dubai Rental Tax, officially referred to as the "Dubai Municipality Housing Fee" or simply as the "Housing Fee".

The second tax is the 5% VAT.

Sheikh Zayed Road skyscrapers as seen from the Dubai Metro

Everything You Need to Know About the 5% Dubai Rental Tax

There is a lot of confusion about the 5% Rental Tax or Housing Fee. Prominent real estate websites briefly mention it without stating who pays for it or how to pay for it.

International real estate firms mention it as one of the taxes Dubai property owners need to pay.

Many local real estate agents I have talked to, on the other hand, have never even heard about this tax.

So what is this 5% rental tax?

In reality, every property, whether it is rented out or not is subject to an annual 5% tax to pay for local municipal services such as local road and utility infrastructure.

As a result, the term "Dubai Municipality Housing Fee" is far more accurate than "rental tax", which many websites are still using.

If the property is rented out, the applicable tax is 5% of the gross rental value of the property.

If the property is not rented out (e.g., kept for self-use, or remains empty altogether), the 5% tax is based on the average rental value for a property of your size in your area.

The reason why most property owners and even real estate agents have never heard about this 5% municipality fee is that it is hidden as part of the property's monthly DEWA bill. DEWA is the Dubai Electricity & Water Authority and is the only provider of electricity and water in Dubai.

If your property is rented out, DEWA utilities are registered in the tenant's name. As a result, the 5% municipality housing fee is paid in full by the tenant, through monthly utility bills.

If the property is used by you or remains vacant, DEWA utilities are registered in your (the property's owner) name, and you will pay for the municipality fee through monthly utility bills.

The 5% Value-Added Tax on Rental Properties

The UAE introduced a 5% Value Added Tax (VAT) on January 1, 2018.

The good news is that the majority of rental apartments and villas are fully exempted from VAT.

Similarly, you will not have to pay VAT when you buy your property from a developer within 3 years of building completion, or buy your property on the secondary (resale) market.

However, the 5% VAT does apply to rent earned from commercial properties, including serviced apartments, hotel apartments, short-term rentals (less than 6 months), offices, warehouses, and shop fronts.

As an owner of such a commercial property (which includes Airbnbs!), you need to apply for VAT registration and collect VAT, but only if you exceed the minimum rental income threshold of Dh375,000.

This 5% VAT also applies to the sale and resale of commercial properties.

If you want to learn more about the ins and outs of Dubai property investing, including a historic assessment on value retention of buildings from the top 20+ property developers, optimal buying and renting strategies, as well as advanced rental yield projection methods based on cash flow analysis, check out our services below.

We also specialize in international estate planning for UAE and global investments.


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