The UAE’s introduction of Corporate Tax (CT) effective 1 June 2023 has significant implications for real estate investors. While the UAE remains an attractive destination for property investment, investors now need to carefully consider whether to hold property in their personal capacity or through a company, as the tax treatment differs.

1. Corporate Tax and Real Estate Income – Natural Persons vs. Companies

Natural Persons (Individuals)

• Exempt Real Estate Investment: Any investment activity carried out by a natural person relating to the sale, leasing, sub-leasing, or renting of land or real estate property in the UAE is exempt from corporate tax, provided it is not conducted through, and does not require, a license from a licensing authority.
• This exemption applies regardless of the type of property (residential, commercial, warehouses, holiday homes, etc.) and irrespective of the income generated.
• The exemption also applies whether the tenant/occupant uses the property for business or non-business purposes.
• However, if the activity requires a license (e.g., property development, brokerage, or real estate-related business), it will not qualify as an exempt real estate investment and will fall within the scope of Corporate Tax.

Companies (Juridical Persons)

• Real estate income earned by companies is fully within the scope of Corporate Tax.
• Taxable income above AED 375,000 is subject to the standard 9% corporate tax rate.
• Free Zone Companies: If a property-holding company is registered in a Free Zone, it may benefit from the 0% corporate tax rate on qualifying income, provided it satisfies substance requirements and other qualifying criteria.
• It’s important to note that while investment income may be excluded, services relating to real estate (such as property management, brokerage, or facility services) are taxable and not covered by the real estate investment exemption.

2. What is “Real Estate” for Tax Purposes?

For corporate tax purposes, real estate covers a broad scope, including:

• Land: Agricultural, industrial, or residential land, along with any structures or fixtures permanently attached.
• Buildings and Structures: Residential, commercial, industrial, or mixed-use properties, warehouses, showrooms, garages, and parking lots.
• Fixtures and Equipment: Any permanent installations forming part of the property or attached to land/buildings.
• Engineering Works: Structures or works permanently attached to the land or seabed.

This wide definition ensures that almost all forms of property investment whether residential, commercial, or industrial fall under the corporate tax framework, depending on the investor’s legal status.

3. Key Planning Considerations

• Choice of Investment Vehicle:
• • Individuals benefit from the exemption for passive real estate investment.
  • Companies face corporate tax but may structure holdings in Free Zones for preferential treatment.
• Licensing Requirements:
• • If an activity requires a license (e.g., real estate development or a commercial property business), it is taxable even if conducted by an individual.
  • Pure investment without licensing remains exempt for natural persons.
• Service vs. Investment:
• • Pure rental or capital appreciation from property investment is treated differently from property-related services.
  • Property management, brokerage, and facility management are taxable services.
• Free Zone Structures:
• • Holding companies or SPVs in Free Zones can provide tax efficiency if they meet the qualifying income and substance conditions.

4. Strategic Decision for Investors

Ultimately, a natural person investor should carefully assess whether to hold property in their individual capacity or through a company structure.

• Individual ownership: Often more tax-efficient due to the exemption, particularly for passive rental income or capital appreciation.
• Company ownership: May be beneficial for larger portfolios, joint ventures, or when access to financing and limited liability protection is important but corporate tax applies unless Free Zone exemptions are met.

Conclusion

The UAE Corporate Tax regime makes a clear distinction between individual real estate investment and company-owned property. Natural persons can benefit from a broad exemption, provided the activity does not require a license. Companies, on the other hand, must factor in the 9% corporate tax or carefully structure investments to benefit from Free Zone incentives. Strategic planning choosing the right ownership structure, understanding licensing requirements, and separating investment from services can help investors maximize returns while staying compliant with the law.