For new business owners looking to invest in or manage Airbnb properties and other rental properties in the UAE, it’s important to understand the tax implications. The UAE’s tax regime on rental income varies depending on the emirate, type of property, and whether the property is used for short-term (like Airbnb) or long-term rentals.
Airbnb Property Tax
Airbnb and other short-term rental platforms have gained popularity in the UAE, particularly in cities like Dubai and Abu Dhabi. However, there are specific tax regulations that property owners must comply with:
- Tourism Dirham Fee: In Dubai, Airbnb hosts are required to pay a “Tourism Dirham” fee, which is a nightly charge that varies depending on the property type and rating. For instance, this fee could range from AED 7 to AED 20 per night. This fee is typically passed on to the guest but must be collected and remitted by the property owner.
- Municipality Fees: In addition to the Tourism Dirham, Airbnb hosts may be subject to municipality fees, which are calculated as a percentage of the rental income. In Dubai, for example, this is often around 10% of the rental revenue.
Taxes on Rental Properties
For long-term rental properties, the tax implications differ slightly:
- Income Tax on Rental Properties: First we need to consider whether the income generated from real estate property (rental) is an investment income or business income. Usually, long term rentals with no additional services (like cleaning, utilities, furnished units etc.) are considered investment activities. Investment activities does not result in any income tax, irrespective of the ownership type of the property.
In contract, short-term rentals (often coupled with value added services like cleaning, concierge, utilities, furnished unit etc.) often fall under “business income”. They key criteria to differentiate between business vs. investment income is level of involvement by the owner (or its appointed property manager), value added services provided by landlord (which makes it closer to what hotels offer), length of stay etc. AirBnb or other such rentals will mostly be considered business income. Nevertheless, it is eventually the question of facts and circumstances.
However, if such business income generating property is directly owned by a natural person, such a person is not required to register for Corporate Tax (thus corporate tax is not applicable) if total revenue from such an activity is less than AED 1 Million in a calendar year. Once the revenue crosses this threshold, or the “business income generating” property is owned by a Juridical person (irrespective of threshold), usual corporate tax law will be applicable and, notwithstanding the exceptions, deductions or relief allowed by the law, any profit from such business will be taxable at 9% (though first AED 375,000 will be taxable at 0%). - VAT on Commercial Properties: While residential properties are exempt from VAT, rental income from commercial properties is subject to a 5% VAT. This VAT must be collected by the property owner from the tenant and remitted to the government.
- Service Charges: Property owners, especially those who rent out apartments or villas in managed communities, are often responsible for paying service charges. These charges cover the maintenance and upkeep of common areas and can impact the overall profitability of a rental property.
Benefits for New Business Owners
For new business owners venturing into the real estate and Airbnb market, the UAE’s tax policies offer several advantages:
- Profit Retention: With no income tax on residential rental income in most of the cases (refer to conditions and caveats mentioned above), property owners can maximize their profits, especially in high-demand areas where rental yields are strong.
- Investment Opportunities: The favorable tax environment encourages investment in rental properties, both for short-term Airbnb-style accommodations and long-term leases. This can be particularly lucrative in tourist-heavy areas, where demand for short-term rentals remains robust.
- Predictability: The clear tax guidelines for both short-term and long-term rentals provide a stable framework for financial planning. New business owners can accurately forecast their potential returns and plan accordingly.
These tax benefits, coupled with the UAE’s strategic location and thriving tourism industry, make the real estate sector an appealing avenue for new business owners. Whether through Airbnb or traditional rental properties, understanding and leveraging these tax regulations can significantly enhance profitability and long-term success.
For information on Property Tax in UAE, contact finnection via email at info@finnection.ae or call us at our toll free number +971 800 0120070
Disclaimer: Above information is subject to change and represent the views of the author. It is shared for educational purposes only. Readers are advised to use their own judgement and seek specific professional advice before making any decision. Finnection is not liable for any actions taken by reader based on the information shared in this article. You may consult with us before using this information for any purpose.