Expatriate real estate buyers in Dubai pay one of the lowest property taxes in the world, reveals a new report.
The emirate, where property yields can go as high as eight per cent per year, has a tax cost of 3.6 per cent of the property price over a five-year period, a fraction behind Monaco, where the tax cost is 3.5 per cent.
“Our research shows that the tax burden across the cities in this report varies considerably both in amount and extent. From 3.5 per cent or 3.6 per cent of the property price in five years in Monaco and Dubai respectively, to over 30 per cent in Sao Paolo,” Ernst & Young’s private client tax services partner for UK & Ireland, Carolyn Steppler, said in the Global Tax Report 2015, jointly released with Knight Frank.
While purchasing property as an investment, tax is not necessarily the first concern but it is important because it is often the after-tax return that measures the success of the investment.
According to EY, Dubai’s tax costs are quite low and are unlikely to change in the near future, but the main source of uncertainty for foreign investors is the potential application of Shariah inheritance rules upon the death of the real estate owner.
“It can, however, potentially, be mitigated through the registration of a will with the Dubai International Financial Centre (certain conditions apply) or if the property is acquired through a Dubai offshore company, the firm said.
KF added that the doubling of the transfer fees to four per cent, combined with the introduction of mortgage caps, at end-2013 has helped to moderate demand for residential property in Dubai over the past 18 months.
The softening of residential prices in the emirate has provided the authorities with little reason to increase the burden of transaction costs in the near-term. At four per cent transaction fees in Dubai are low compared to other markets from which a significant number of residential property buyers originate, including India, Pakistan and the UK – making it an attractive investment destination, the consultancy stated.
The report analysed the buying, holding and selling costs for foreign buyers of prime residential property over a five-year period (2010–2015).
Liam Bailey (pictured), Global Head of Research at Knight Frank says, “We are often asked how property costs and taxes compare around the world. Whilst Shanghai and Monaco offer favourable property and taxation costs (2.9 per cent and 3.5 per cent respectively), other cities have produced interesting results.