UAE Law and Practice Contributed by: Duncan Pickering, Nicola de Sylva, Sean Cope and Marta Almeida, DLA Piper LLP
restrict the right of a public authority to expropriate land, unless such expropriation is for a public benefit and compensation will be paid to the party being dis - advantaged by such expropriation. There is no formal statutory process, although typi - cally for large-scale expropriations a committee will be formed to co-ordinate dealings with affected parties and to determine compensation. 2.10 Taxes Applicable to a Transaction Asset Deals In Abu Dhabi, the seller and buyer are required to pay registration fees of between 1% and 4% of the pur - chase price. It is common for the buyer to pay the transfer fee. In Dubai, the seller and buyer are required to pay reg - istration fees of 4% of the purchase price, which are split equally between the parties unless otherwise agreed. In practice, it is common for the buyer to pay the full 4% transfer fee. If the seller is a taxpayer for corporate income tax (CIT) purposes, a potential capital gain derived from the transfer of assets (calculated as the difference between the transfer value and the acquisition value) will be taxable for CIT at the standard rate of 9%. The applicable CIT regulations also foresee certain reliefs (eg, Business Restructuring Relief/Qualifying Group Relief) which, if certain requirements are met, may be useful for deferring the taxation of a potential capital gain. The transfer of assets will typically be considered a taxable supply for VAT purposes at a standard rate of 5%. However, if the transfer is part of a sale of a busi - ness as a going concern, such transfer could remain outside of the scope of VAT. The application of the VAT regulations needs to be assessed on a case-by-case basis. Mortgage Where a mortgage is taken out on the property, the mortgage must also be registered. The applicable mortgage registration fees are (for Abu Dhabi) 0.1%
of the mortgaged amount and (for Dubai) 0.25% of the mortgaged amount (up to a maximum of AED1.5 million). Share Deals In Dubai, the DLD requires notification of any chang - es in shareholding of real estate-owning companies to the DLD, and a proportionate transfer fee will be applied. Failure to inform can result in a fine. If the seller is a taxpayer for CIT purposes, any gain derived from the sale or divestment of shares will in principle be subject to tax at the standard rate (9%), unless the conditions for the participation exemption regime are met, or unless the seller is eligible for the 0% tax rate under the free zone tax regime. The trans - fer of shares is typically exempt from VAT. VAT VAT is applied to the sale of real estate assets (dis - cussed in more detail in 8.1 VAT and Sales Tax ). CIT Both buyers and sellers should evaluate the tax impli - cations of transactions involving real estate from a CIT perspective. Generally, any income derived from the sale or divestment of real estate assets by juridical persons will be subject to tax at the standard tax rate of 9%. However, under certain circumstances, income from the sale of commercial property could benefit from a 0% CIT rate under the free zone tax regime (subject to meeting the relevant conditions). The UAE CIT regime offers various forms of relief for intra-group transfers or business restructurings involving real estate, whereby assets can be transferred at book value and no gain is realised by the seller. Individuals who conduct a business or business activ - ity in the UAE will also be subject to CIT if their turnover exceeds AED1 million within a calendar year. However, income that individuals earn from real estate invest - ments, including profits from selling, leasing, subleas - ing or renting out land or property, is exempt from CIT. This exemption applies provided these activities do not require a licence or are not conducted through a licence. Additionally, this type of real estate income does not count towards the AED1 million threshold that determines CIT liability for individuals.
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