The Federal Tax Authority (FTA) has recently issued a public clarification on taxability of Dubai Owners’ Associations and Management Entities. In the clarification, FTA clarifies the significant impact of Law No. 6 of 2019 Concerning Ownership of Jointly Owned Real Property (“Law No. 6”) on the taxability of Owners’ Associations and Management Entities in the Emirate of Dubai. Law No. 6 was published on 4th September 2019 and became effective 60 days thereafter; that is, on 3rd November 2019. This Law applies to all Master Projects and Jointly Owned real estate property in Dubai. As per Article 49 of Law No. 6, all rights and obligations of Owners’ Associations which arose before the effective date of that Law had to be transferred to the Management Entities. Thus, Management Entity will supersede the Owners’ Associations in the business of managing the Jointly Owned Real Property.
Impact of Law No. 6 on the taxability of Owners’ Association
Dubai Owners’ Associations were required to apply for VAT de-registration before 4th of December, 2019 (within 20 business days) as all the rights and obligations of Owners’ Associations were transferred to Management Entities, and thus, the Owners’ Associations are considered to be no longer making any taxable supplies.
Obligations for Management Entities under the VAT Law
Management Entities are regarded as making supplies to the owners of Jointly Owned Real Property and required to fulfil VAT obligations in this regard, including VAT registration, the issuing of valid tax invoices and VAT reporting to avoid penalties such as:
a.Failure to Register under VAT law - AED 20,000.
b.Failure to file correct Return - AED 3,000 for the first time, AED 5,000 in case of repetition.
c.Failure to issue tax invoice/credit notes - AED 5,000 per document.
d.The failure to settle the Payable 2% immediately, 4 % on 7th day & 1% on daily basis after one month up to 300%.
It is important to note that Law No. 6 is only applicable for Dubai and Owners Association's in other emirates are still required to be registered for VAT purposes.