Real Estate Taxation in Dubai: Understanding Taxes on Rental Income and Capital Gains for French Investors

Dubai is currently one of the most attractive real estate markets globally. With significant rental yields, economic stability, and no direct taxation, this city attracts an international clientele, particularly French, seeking profitable investment in a favorable tax environment. However, vigilance is required: even if Dubai does not impose taxes on income or capital gains, French tax rules may still apply in certain cases. Everything depends on your tax residence location and how you organize your investment. The purpose of this guide is to inform investors about the tax system related to real estate in Dubai, whether you are a French tax resident or non-resident.

1. Acquiring real estate in Dubai: local taxes in force

In Dubai, acquiring real estate is not entirely free of costs, unlike some foreign markets. Several fees must be anticipated from the acquisition, regardless of your country of origin or tax residence location.

a. Property transfer duty

At the time of acquisition, the buyer must pay a property transfer tax equivalent to 4% of the purchase price to the Dubai Land Department (DLD). This duty applies to all transactions, whether involving an apartment, villa, or commercial property.

b. Registration obligation

In addition, a registration tax of 0.25% of the property cost is required. This amount formalizes the property transfer and registers the buyer with Dubai's land registry. These one-time fees somewhat replace transfer duties or notary fees in France, but they must be planned for during the transaction.

2. Rental income in Dubai: almost zero local taxation

This is one of the major advantages of the Emirates' real estate market. In Dubai, there is no tax on rental income. Thus, owners receive their net rental benefits free of any local tax. This tax exemption plays a crucial role in the exceptional profitability of rental investment in Dubai, where yields generally range between 6% and 10% per year, depending on neighborhoods and property types. However, this does not exempt French investors from all reporting obligations: France retains the right to tax this income if you maintain your tax residence on its territory.

3. Is there property tax in Dubai?

Dubai does not practice property tax as in France, however, it imposes an annual charge similar to a "Housing Fee" or property fee. The Dubai Land Department (DLD) has established this tax which varies according to the type and destination of the property:

Residential properties: approximately 0.25% of the property value annually.

Commercial properties: approximately 0.50% of the product value.

The assessment is based on the rental or approximate value of the real estate. Concretely, this tax is significantly lower than property taxes applied in Europe.

4. Tax obligations for French tax residents

Even if a French tax resident purchases property in Dubai, they are still required to comply with certain obligations in France, because the property is located abroad.

a. Real Estate Wealth Tax (IFI)

If the cumulative value of real estate assets, in France and internationally, exceeds 1.3 million euros, the taxpayer must pay the Real Estate Wealth Tax (IFI). The property held in Dubai must therefore be included in the IFI declaration, even if it is not taxed locally.

b. Income from renting property in Dubai

According to the tax agreement between France and the United Arab Emirates, taxation of real estate income occurs in the country where the property is located. Nevertheless, due to the absence of taxation on this income in Dubai, France grants a tax credit equivalent to the French tax. In other words, this means that rental income must be declared in France. However, this does not lead to direct taxation. On the other hand, it increases the total reference income and could raise the marginal tax rate on other income. This is therefore a partial neutralization: no additional tax, but an indirect influence on the overall rate.

c. Real estate capital gain upon resale

If you are not a French tax resident: In Dubai, there is no local tax on real estate capital gains. No tax is applied in the United Arab Emirates on profits from the sale of real estate property. Thus, all sale profits are attributed to the owner, offering a major competitive advantage to foreign investors.

If you are still a French tax resident: However, if you maintain your French tax resident status, the capital gain from the sale of property in Dubai will be subject to tax in France. According to the tax agreement between France and the Emirates (article 11), taxation on real estate capital gains applies in the country where the property is located. However, since the Emirates do not levy tax on capital gains, no tax credit is deducted in France and taxation is subject to the usual rules applying to French residents (19% tax + 17.2% social contributions, under certain conditions).

5. UAE tax residency status: a crucial advantage

Opting for tax residency in the United Arab Emirates can radically change the tax situation of a French investor. By truly moving one's tax residence; that is, one's home, main activity, and income, to the Emirates, the taxpayer escapes French tax on rental income, capital gains, and real estate wealth.

However, this approach must be genuine and demonstrated:

• Reside at least 183 days per year in the Emirates.

• Locally established center for economic interests.

• Absence of professional income received in France.

A simple residence permit is not enough: the French tax authority verifies the authenticity of the transfer.

7. Conclusion

Real estate in Dubai combines undeniable economic advantages with particularly favorable local taxation. For a French investor, the real challenge is managing the tax relationship with France. As long as you remain a French tax resident, some taxes, particularly on capital gains and IFI, remain applicable. This is why it is essential:

• to precisely identify your tax residence location;

• to understand the scope of the tax agreement between France and the Emirates;

• to organize your investments in an optimal and compliant manner.

Support by LATRECHE ASSOCIATES

LATRECHE ASSOCIATES supports investors and individuals in organizing, managing, and taxing their real estate assets in Dubai. Our specialists examine your tax context, determine your tax obligations in France and the Emirates, and suggest the most appropriate approach for your wealth aspirations. Do not hesitate to contact us for a tailor-made analysis of your real estate project in Dubai as well as a comprehensive projection of your international taxation.