VAT on Commercial Property in Dubai 2026: The 5% Rule and Input Recovery Explained

If you are buying, selling or leasing commercial property in Dubai — an office in Business Bay, a retail unit in a mall, a warehouse in Dubai Investments Park — VAT is not optional and it is not the same regime that applies to a residential apartment down the road. Commercial real estate sits inside the UAE's standard 5% VAT net on both the sale and the lease, with input VAT recovery available when the property is used for taxable business purposes. This guide sets out exactly how the rate applies, when you can claim it back, what registration actually requires, and the new 2026 deadline that is quietly wiping out old refund claims. Every figure is sourced to the Federal Tax Authority (FTA) or a named professional-services publication — nothing here is invented. Last updated: July 2026.

The Short Answer: 5% on Sale, 5% on Lease, No Exceptions for Commercial

Under Federal Decree-Law No. 8 of 2017 on Value Added Tax, in force since 1 January 2018, the UAE applies a standard VAT rate of 5% to taxable supplies of goods and services, and commercial real estate is treated as a standard taxable supply with no special exemption or zero-rating. That means:

• The sale of an office, retail unit, warehouse, showroom, labour accommodation, or commercial plot is subject to 5% VAT, charged on the sale price.
• The lease of the same categories of property is subject to 5% VAT, charged on the rental value, for every rent cycle for the duration of the lease.
• There is no threshold size or property value below which commercial VAT does not apply — the 5% rate is triggered by the nature of the supply, not the transaction size (registration thresholds are a separate question, covered below).

This is a meaningfully different regime from residential property, where the first supply of a newly completed residential unit within three years of completion is zero-rated at 0%, and every subsequent residential sale or lease is VAT-exempt altogether. Confusing the two is the single most common VAT mistake we see among first-time commercial buyers — a mixed-use tower with ground-floor retail and residential floors above genuinely has two different VAT treatments running through the same building, and DLD registration paperwork does not spell this out for you.

Worth flagging early: if you are weighing up a commercial purchase against buying a standalone office, retail unit or warehouse, VAT is one line item among several — DLD transfer fees, agency commission and, if you hold the asset through a company, corporate tax also apply and sit on top of the numbers below.

How VAT Applies When You Buy or Sell Commercial Property

On a straightforward commercial sale, the seller is the party responsible for charging, collecting and remitting the 5% VAT to the FTA — assuming the seller is VAT-registered, which is generally the case for anyone selling commercial property as part of a business activity. The buyer pays the sale price plus 5% VAT, on top of the standard 4% DLD transfer fee and any agency commission. Because these are separate taxes charged by separate authorities, they stack: a seller registering the sale at the Dubai Land Department trustee office does not automatically settle VAT, and a buyer paying VAT to the seller does not automatically satisfy DLD's fee.

There is one significant exception worth knowing before you transact: a sale structured as a Transfer of a Going Concern (TOGC) — broadly, where an entire tenanted, income-generating commercial property is sold together with its existing lease contracts, effectively transferring an operating business rather than a bare asset — can, if the conditions in the Executive Regulations are met, fall outside the scope of VAT altogether. As RBS Auditing's guidance on TOGC treatment sets out, this is a specialist area with strict conditions — the buyer must itself be, or intend to become, a taxable person carrying on the same kind of business, and the transferred assets must be capable of operating independently — and getting it wrong triggers a VAT liability that neither party budgeted for. Do not assume a deal qualifies as a TOGC without a specific written FTA-compliant assessment — treat the standard 5% treatment as the default and TOGC as the exception that needs proving.

For individuals who are not conducting a business — buying a single commercial unit purely as a passive investment with no other taxable activity — VAT registration may still be triggered once the value of the taxable supply (the rental income the unit generates once let) crosses the mandatory threshold. This catches a lot of first-time commercial investors off guard: owning one leased office is, in FTA terms, "carrying on a business" even if you think of it as a passive investment.

How VAT Applies to Commercial Leasing

Leasing is where most ongoing VAT obligations actually sit, because a sale is a one-off event but a lease generates a recurring VAT liability for as long as the tenancy runs. A VAT-registered landlord of commercial property must:

• Charge 5% VAT on every rent instalment (or the full annual rent if paid upfront), issue a valid tax invoice, and remit the VAT collected to the FTA on the applicable filing schedule.
• Charge VAT regardless of what the tenant uses the space for — a commercial unit leased to a retailer, a law firm, or a logistics company is taxed the same way at the landlord level; the tenant's own VAT registration status determines whether the tenant can recover the VAT it pays on rent, not whether the landlord must charge it.
• Continue charging VAT on service charges and any other consideration bundled into the lease that relates to the commercial unit, since these typically follow the VAT treatment of the underlying supply.

For the tenant side: a VAT-registered business leasing commercial premises for its own taxable trading activity can generally recover the VAT paid on rent as input tax, which functionally reduces the real cost of the lease. A tenant that is not VAT-registered — because its turnover sits below the mandatory threshold, or because it makes exempt supplies — pays the 5% as an absolute cost with no recovery route.

Input VAT Recovery: The Part Investors Get Wrong

Input VAT recovery is the mechanism that determines whether the 5% you pay on a commercial purchase or lease is a genuine cost or simply a cash-flow timing issue. The general recovery rule under UAE VAT law: input tax is recoverable to the extent the underlying goods or services (including property) are used, or intended to be used, to make taxable supplies. Buy an office and use it to run a taxable business, or lease it out on a taxable commercial lease, and the VAT you paid on acquisition is recoverable. Buy a residential building for exempt long-term letting, and the VAT you paid on related costs is not.

Where it gets genuinely complicated is mixed portfolios and mixed-use buildings. A company that owns both commercial units it leases to businesses (taxable) and residential units it lets to tenants (exempt) cannot simply reclaim all input VAT — it must apportion recoverable input tax based on the ratio of taxable to exempt supplies, and the apportionment method itself needs to be defensible and consistently applied, because the FTA has explicit powers to challenge input VAT claims where supporting documentation or apportionment logic does not hold up.

Documentation discipline matters more than most buyers expect. To recover input VAT on a commercial acquisition, you generally need a valid FTA-compliant tax invoice from the seller showing their Tax Registration Number (TRN), the VAT amount charged separately from the price, and clear evidence the property is used, or intended to be used, for taxable purposes. Recovery claims are made through periodic VAT returns, and the FTA now has explicit authority to deny claims where supplier verification is incomplete — a VAT invoice on its own is no longer automatically sufficient evidence, so keep the underlying sale and lease contracts, TRN checks and usage records alongside every invoice.

VAT Registration Thresholds: When You Must, and When You Should, Register

Registration is the gateway to both charging VAT correctly and recovering it — you cannot issue a valid VAT invoice, or reclaim input VAT on a commercial purchase, without a TRN. Per the FTA's own VAT registration guidance, the two thresholds that matter are:

The practical trap for commercial property investors: a single office or retail unit generating, say, AED 200,000 a year in rent already clears the mandatory AED 375,000 threshold once VAT-inclusive rent, service charges and any other taxable income are combined over a rolling 12 months — or it may not, if it is your only asset and rent is modest. Either way, the calculation needs to be done at the point of purchase, not after the first VAT return is late. Many investors voluntarily register before completion specifically so they can recover the 5% VAT charged on the purchase price itself, rather than treating it as a sunk cost while waiting to cross the mandatory threshold organically.