The FTA states that according to Law No. 6, with effect from 3 November 2019, all rights and obligations of Dubai Owners’ Associations were transferred to Management Entities (an entities in charge of managing common facilities, Jointly Owned Real Property, or common parts in accordance with the provisions of this Law. This includes developers, management companies, or hotel project management companies, as the case may be).
Jointly Owned Real Property defined as a building, including the parts and appurtenances allocated for common use, and the land on which that building is constructed; or land which is subdivided into units or land plots intended for individual ownership.
The term “Unit” defined as a flat, shop, office, warehouse, floor, whole or part of a land plot, town house, or independent house that constitutes part of Jointly Owned Real Property and is intended for residential, commercial, industrial, or any other use.
On the basis that all of the Owners’ Associations’ rights and obligations were transferred to Management Entities with effect from 3 November 2019, Dubai Owners’ Associations were no longer making any taxable supplies.
As the result, Dubai Owners’ Associations were required to apply for VAT de-registration within the period prescribed in the tax legislation of 20 business days i.e. no later than 4 December 2019.
Management Entities are regarded as making taxable supplies of management services to the owners of Jointly Owned Real Property and required to comply with VAT obligations in this regard, including issuing valid tax invoices and VAT reporting.
The Management Entity is entitled, under Article 54(1)(a) of the Decree-Law,7 to recover VAT paid in respect of goods and services acquired to manage the Jointly Owned Real Property, provided the it obtains and retains valid tax invoices addressed to the Management Entity.
Penalties
The administrative penalties imposed for not complying with the de-registration requirements by Dubai Owner's Associations (i.e. AED 10,000).
The Clarification further states that the penalty for failing to issue valid tax invoices and tax credit notes is AED 5,000 per documenter.
In case where the Management Entity fails to submit correct VAT return two penalties would apply:
- that is a fixed penalty (AED 3,000 for the first time and AED 5,000 in the case of repetition),
- a percentage-based penalty (i.e. from 5% up to 50%) if the Management Entity enjoyed a tax benefit as a result of submitting an incorrect return.
Furthermore where the incorrect tax return resulted in unpaid tax due, the Management Entity shall be obligated to pay a late payment penalty consisting of:
- 2% of the unpaid tax is due immediately once the payment of payable tax is late;
- 4% is due on the seventh day following the deadline for payment, on the amount of tax which is still unpaid;
- 1% daily penalty charged on any amount that is still unpaid one calendar month following the deadline for payment with upper ceiling of 300%.
