Things To Know For Investing In Dubai Property As A Foreigner

The Impact Of Municipality Taxes On Rental Prices In The UAE

Renters Take The Hit

In many cases where taxes are a part of real estate, those extra fees are incorporated into the overall rental price. The apartment or villa owners usually pass on the expense to their renters so that their ROI remains at an acceptable level.

There is some question as to who pays this tax as it must be collected whether the apartment is occupied or not. This tax may be one of the key factors why rental prices in Dubai have risen quickly in the past few years.

Keep reading to find out more about this tax and who pays for it. It has a surprising source.

It May Not Be Widely Known

One of the bigger secrets to investing in Dubai real estate is the Dubai Municipality Housing Fee. Many local real estate agents may not have heard of this tax even though it has been around for some time.

However, many international rental websites have mentioned it but under a different name. Sometimes this Municipality Tax is called the 5% Rental Tax or Housing Fee.

This is one reason why it is not widely known. Another reason it is not widely known is that its source is DEWA or Dubai Electricity & Water Authority. This Utilities company is one that charges and collects the Municipality Tax.

However, this tax is not listed as a Municipality Tax but is hidden on the DEWA utility bill.

The Purpose Of The Municipality Tax

The purpose of this tax is to help cover the cost of maintaining the local road and utilities infrastructure. Even in cities like Dubai, infrastructure can wear out or become outdated.

The money collected from this tax goes to keep those infrastructures in top shape and upgrade to more efficient technologies. The amount of tax that is collected is leveled at 5% but that can change at any time.

Who Pays This Tax

This is the murky aspect of this tax. If the apartment or villa, etc., is rented out, then the tenant pays this tax every year. It is part of their DEWA utility bill and the annual amount taxed is 5% of the gross rental value of the property.

As stated, the tenant bears this expense. However, if the property is not rented out, then the owner has to pay the fee. That fee is 5% of the average rental value of the properties in the home’s, etc., location.

The 5% charge is divided into 12 monthly payments so you may not see a significant rise in your utility bill.

The Impact Of The Municipality Tax

The impact of this tax may be hard to register as it is always a hidden tax that most renters and owners may not know about. But it may be one of the factors that have caused Dubai real estate owners to increase their rental fees.

The owners increase their rental fees to cover this expense as they have been paying it while the apartment, home, villa, or even commercial space lay empty.

The Municipality Tax is levied to all properties not just to residential apartments. If you own a business in Dubai or work out of Dubai, your office and other spaces will be levied this tax.

Commercial renters and owners do not get an exemption from this tax. However, the fee varies depending on the rental value of the rental contract or property. To avoid the higher fees that come with signing a new rental lease in another area of Dubai, many current renters choose to re-lease their current spaces.

While that move may save on some fees, it will not save on paying the Municipality Tax. What is saved is the increase of the annual fee by moving to a larger more expensive apartment or villa, etc.

Cutting costs is always important and renters can avoid higher rental fees by avoiding those apartments, etc., that have been vacant for some time. The owner may include their Municipality Tax expense in their new rental charges.

It pays to do some investigation about this and other fees to see if the owner is including their payments in your monthly rental price.

The Municipality Tax Is Not The VAT

It is possible to get confused and think that these two taxes are one and the same. They are not. There are some vast differences between the two taxes which may or may not bring you some good news.

One of the main differences is that the municipality tax is mandatory on all properties. There are no exemptions for this tax. However, the VAT is not applied to all rental apartments or villas.

Also, you will not have to pay the VAT if you buy a property within 3 years of its construction. Where the VAT and the Municipality Tax are the same is in commercial properties.

Renting a commercial space does not exempt the renter from paying the VAT, no matter what type of commercial space you are renting. The good news here is that the monthly rental fee has to be greater than 375, 000 AED per month before the VAT is levied.

Another difference is that the Dubai Land Development may be the collector of this tax while the DEWA collects the Municipality Tax. The tax and fee system of Dubai can get complicated and you will need an expert to help you navigate this minefield.

Some Final Words

When it comes to renting or buying real estate in Dubai, come to our estate agency. We have tax experts who know everything there is to know about the Dubai Municipality and other taxes in that city.

We have over 10 years of real estate and Dubai tax experience and our experience and knowledge will lead you to the right economic purchase for your life goals.

When you want the best results that save you money, you go to the estate agency that has the best estate agents. We have those top people working for us. Contact us today to save.

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