The 5 per cent VAT on commercial real estate must be paid prior to the completion of an asset sale, not afterwards, the UAE’s Federal Tax Authority (FTA) said on Wednesday. In a statement clarifying the rules around payment of the levy on property transactions, the FTA urged buyers “to pay the due VAT before proceeding with the transfer of ownership”. “The tax laws aim to provide a suitable environment for the continued growth and prosperity of the real estate sector – one of the most important economic sectors in the government’s plans to diversify sources of income, and one of the most attractive sectors for investors,” the FTA said. The UAE, along with Saudi Arabia, introduced a 5 per cent tax on certain goods and services on January 1, to help offset the effects of lower oil prices in the past three years. The UAE and Saudi Arabia are the only GCC states to introduce VAT and excise taxes to date, although all member countries have signed up to implement the levies by next year. The sale of un-rented commercial properties, as well as off-plan sales and rental of commercial real estate, is subject to the 5 per cent VAT. However, taxes paid on the property’s expenses during a specified rent period can be recovered through the tenant’s tax return, the FTA’s statement said. Real estate-related services, including brokerage, are also subject to a 5 per cent VAT. “All other property [including residential] is either not subject to or exempt from the 5 per cent VAT,” FTA director-general Khalid Al Bustani said. Residential buildings whose construction was completed a maximum of three years earlier are subject to zero-rated tax, allowing the owner or investor to reclaim taxes on construction expenses.