VAT SERVICES IN UAE

VAT CLARIFICATION FOR DUBAI OWNERS ASSOCIATIONS AND MANAGMENT ENTITIES 

The Federal Tax Authority (FTA) has issued a public clarification (VATP022) about VAT on Dubai Owners’ Association (OA) and Management Entities. The clarification states the provisions of Law No.6 of 2019 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai which was issued on the 4th of September, 2019. As per the regulations, the Dubai Owners’ Association no longer makes any taxable supplies and is required to deregister for Value Added Tax (VAT) in the UAE. In turn, the obligation of filing taxable supplies has been transferred to Management Entities on behalf of the owners of Jointly Owned Real Properties. As a result, the Management Entities will supersede the Owners’ Association in the business of managing the Jointly Owned Real properties, including individual units.

The Owner’s Associations (OA) are defined as organizations or associations established to monitor and maintain buildings and other properties in an area. More than often OAs are formed by a joint partnership between the owners of the property and are responsible for keeping the buildings and the premises clean, safe, and secure. Management Entity, according to the Federal Tax Authority (FTA) is an entity in charge of managing the property, which includes developers, management companies, or hotel project companies. The FTA accordingly does not regard the Management Entity as an agent obliged to manage the building but as a person supplying goods and services to the owners.

Impact on the Dubai Owners’ Associations:

• All rights and obligations of Owners’ Associations before the effective date of that Law had to be transferred to the Management Entities
• As the Owners’ Association no longer makes taxable supplies, they must deregister from VAT in the UAE within 20 business days from the date the registrant stops making taxable supplies.
• Failing to apply for deregistration from VAT in the UAE within 20 business days of stopping the taxable supplies incurs an administrative penalty.

Impact on Management Entities:

• The Management Entity is considered as a taxable person and is obliged to file for VAT in the UAE on behalf of the owners of the units.
• The management of a Jointly Owned Real Property constitutes a taxable supply of services, and therefore is subjected to a standard VAT of 5%

• The VAT rate is regardless of whether there are limitations on the use of service charges collected.
• The Management Entity is required to issue valid tax invoices to the recipient of the services and is viable for any penalties which may arise as a result of incorrect tax return submissions,
• Failure to submit the VAT returns are liable for two kinds of penalties, a fixed penalty and a percentage-based penalty.
• Failure to issue valid tax invoices or credit notes incurs a penalty of AED 5,000 per document.

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