Your Property Tax: Dubai cheaper than London, Mumbai, Hong Kong
Tax at 3.6% of property price over five-year period
By Parag Deulgaonkar
Published Monday, November 23, 2015
While purchasing property as an investment in Dubai, tax is not necessarily the first concern
Expatriate real estate buyers in Dubai have to pay one of the lowest property taxes in the world, reveals a new report.
The emirate, where property yields can go as high as 8 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,” Carolyn Steppler, Private Client Tax Services Partner at Ernst & Young (EY), UK & Ireland, said in ‘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 remain 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.
Emirates 24|7 has revealed that Indians, Pakistanis and United Kingdom nationals are the largest property investors with their combined investment running into billions of dirhams.
The Dubai land Department also asserted in November 2015 that it was not planning to raise the registration fees.
Read: Dubai real estate registration fee remains at 4%: DLD
The ‘Global Tax Report 2015’ analysed the buying, holding and selling costs for foreign buyers of prime residential property over a five year period (2010–2015).
Liam Bailey, 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.
“Hong Kong and Singapore for example, offer low property costs at 3.7 per cent and 4.3 per cent respectively for a $1m property but the stamp duties for foreign buyers mean taxes are relatively high at 22.4 per cent and 19.0 per cent respectively.”
As the rate of price growth slows in many global city markets, transaction costs and taxation are becoming increasingly important considerations for investors.
London sits neatly in the middle of the 15 cities when analysing both property costs and tax costs. Foreign investors are charged 7.8 per cent and 5.4 per cent respectively in property costs when buying at the $1m and $10m level. Looking at the tax costs – including stamp duty land tax, investors buying in their own name expect to pay 9.7 per cent for $1m investment and 20.7 per cent for $10m.
When analysing those cities where property costs are highest, Knight Frank and EY have determined Paris (15.3 per cent), Berlin (13.3 per cent) and Geneva (12.6 per cent) to impact foreign investors with the highest property costs at the $1m mark. Geneva replaces Paris when considering property costs at the $10m level, charging investors 13.2 per cent of the five year sales price, followed by Berlin (11.3 per cent) and Monaco (10.8 per cent).
Considering the tax costs across the 15 cities, it is a different story. Taxation is highest in Sao Paulo both at the $1m and $10m level, costing investors 31.5 per cent over the five year period. It is followed by Hong Kong. Investors here are charged 22.4 per cent of the $1m property cost over a five-year period but Sydney replaces Hong Kong at the $10m mark charging foreign buyers 26.0 per cent in tax.
“Policymakers are increasingly using tax and property costs as a means of regulating housing demand, controlling affordability and generating revenue. It will be interesting to see how the current situation in each of the 15 cities will change in the coming years,” the report stated.