The UAE Ministry of Finance has announced that residential property will not be subject to value added tax, which will only apply to the sales and leases of commercial property.

Sales and leases of residential property will be exempt from the tax, along with undeveloped land, civil servants said last week, according to The National.

Property development and the first sale of new homes will be subject to a zero rate of VAT, though all other commercial property will be subject to a 5% tax levy.

Earlier this week, Rakesh Pardasani, partner at RSM UAE, told Construction Week that the tax will result in an increase in construction and development costs, which will see the price of many developments rise from next year.

“Any costs that they incur after that date will attract an additional 5%, where we will see the developers build it into their selling price of the units,” he said.

The Ministry of Finance will start registering companies that are above the yearly threshold of $100,000 for VAT by October of this year in preparation for the implementation of the levy from January 1, 2018.

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