Host
It is Understanding Property and I guess slightly broader these days. Ludmila Yamalova from Yamalova and Plewka is with us. Ludmila, a great pleasure to see you. Nice to have you back.
Ludmila Yamalova
Great to be here.
Host
Let me see. Let’s start. There are three things I wanted to bring up with you. One that kind of surpasses or usurps the other two is VAT. It’s interesting because we keep hearing:
- VAT is going to be 5%—that’s enshrined in law and matter-of-fact.
- VAT could apply to where I live. If I’m a landlord, I might have to pay.
But actually, the case is: hold on a moment, sit back and think, because we don’t know yet.
Ludmila Yamalova
Exactly, and this is what I wanted to clarify for listeners. It’s very important to understand the background of where the VAT law stands today. Right now, there is no law yet, and this is important to highlight.
There is a tax committee that has been officially formed, and that decision has been published in the official gazette. However, the VAT law itself, including how it will be structured and drafted, and which industries or businesses it will cover, has not yet been finalized or published.
The last update from officials mentioned that a draft was circulating at the Federal National Council but has not progressed further. Therefore, there isn’t even a draft for the public to view or comment on.
Until the law has been finalized, published, and made official in the gazette, I would caution listeners against making drastic decisions for their businesses in anticipation of what this law might bring.
Host
It’s interesting you say that because I’ve seen many people sharing on Facebook and Twitter today various news articles about residential property sales being exempt.
Ludmila Yamalova
Indeed. I’ve spoken to officials from various sectors, including the Central Bank, about that. One message is that residential property might not be treated differently from commercial property.
There’s already a tax of sorts on property sales—the Dubai Land Department registration fee of 4%. Implementing VAT would effectively mean taxing property twice.
However, new properties—those being handed over for the first time—might be subject to VAT. This includes off-plan properties. That said, this is just speculation from press reports and has not been substantiated in law.
My advice is to avoid making significant decisions based on such announcements until the law is clear.
Host
There’s also been talk about rental income being taxed.
Ludmila Yamalova
Yes, that announcement caused a lot of concern among landlords. However, taxing rental income would resemble an income tax, which VAT is not. VAT applies to transactions involving the sale or purchase of goods and services—not passive income like rent.
Without a concrete framework or law in place, it’s impossible to validate or refute these claims.
Host
So, if someone comes to you for advice about VAT, the message is to step back and wait until we have the actual law.
Ludmila Yamalova
Exactly. One of my clients came in recently wanting to restructure their entire business to avoid the “worst,” based on their understanding of VAT. I had to explain that without a law in place, I cannot provide sound advice.
Even my own business—legal services—might fall under VAT. So, when the law is published, I’ll ensure my business complies, and only then will I be in a position to advise clients properly.
Host
Markets don’t like uncertainty. People are filling the vacuum of not knowing with speculation.
Ludmila Yamalova
Correct. Another layer of complexity is that VAT is meant to be a GCC-wide tax. It’s unclear whether all GCC countries will implement it simultaneously or if it will roll out gradually.
Host
The UAE Ministry of Finance tweeted recently that some GCC countries may bring VAT in by January 2018, while others might follow later.
Ludmila Yamalova
Yes, but again, these are unofficial statements. Until we see the law in writing, we cannot confirm anything.
Host
So, to Omar’s question: is it better to buy property now before VAT is applied?
Ludmila Yamalova
We don’t know. But based on current guidance, ready properties—those that are not new—should not be subject to additional taxes since the Dubai Land Department registration fee already applies.
Host
Let’s go straight to the text line, Ludmila. Faisal has a question:
“If a tenant defaults on a payment and their check bounces, what are the landlord’s options?”
Ludmila Yamalova
There are two options for landlords when a check bounces:
- Criminal Case
A bounced check is a criminal offense in the UAE. The landlord can report it to the police. The process is fairly straightforward:- The police will summon the tenant.
- If the tenant pays the amount, the case is dropped without it appearing on their criminal record.
If the tenant doesn’t pay, the case escalates, and the tenant may face legal consequences, including detention.
- Civil Case
Alternatively, the landlord can file a case with the Rental Dispute Center (RDC) for breach of contract. This allows the landlord to seek eviction or payment of dues through civil proceedings.
Host
What happens if the tenant simply doesn’t pay and refuses to leave?
Ludmila Yamalova
If a court issues a final eviction order, but the tenant refuses to vacate, the landlord can file for enforcement through the RDC.
Once the enforcement order is granted:
- The court will involve the police to serve the eviction notice.
- The landlord must have a court representative present during the eviction process to avoid potential liabilities, such as claims of theft or damage to the tenant’s property.
Host
That’s good to know. Another related text: “If a bounced check is tied to a closed bank account, can legal action still be taken?”
Ludmila Yamalova
Yes, even if the account is closed, legal action can still be pursued. A bounced check remains actionable for two years after it is presented. The account holder can be held personally liable regardless of the account status.
Host
Let’s switch gears. A text from Zuhayb asks:
“The owner of my building has changed. The new owner has introduced new maintenance charges. Maintenance was always part of my contract. Can I refuse to pay the new fees?”
Ludmila Yamalova
Yes, you can refuse. When a building is sold, the new owner inherits all existing contracts and liabilities. Unless you’ve signed a new lease agreement that explicitly includes these charges, the original terms of your lease still apply.
If the new owner wants to amend the terms, they would need to serve you with proper notice, which typically includes a 12-month eviction notice to negotiate a new contract.
Host
That’s clear. Another property-related question:
“My landlord says I need to repair any AC issues in my villa. Who is responsible?”
Ludmila Yamalova
The UAE rental law states that:
- Major repairs are the landlord’s responsibility.
- Minor repairs can be the tenant’s responsibility, but only if the lease agreement specifies this.
If the agreement doesn’t mention anything about AC repairs, then the landlord is responsible. If the landlord refuses, the tenant may need to cover the cost upfront and seek reimbursement later through legal channels.
Host
We’ve got a question from Vinnie about car parking. His neighbor is giving him their car park, but the landlord wants to charge AED 7,000. Can the landlord do this?
Ludmila Yamalova
This depends on the lease agreement. If the car park is included in your lease, you should have the right to use it as you see fit, including lending it to someone else. However, if the agreement excludes parking or allows the landlord to impose additional charges, then they may have grounds to charge.
It’s a gray area. Review your lease agreement carefully, and if parking isn’t explicitly excluded or charged separately, you likely have the right to use the space without paying additional fees.
Host
One last question before we wrap up this segment. Someone asks:
“I financed my property through a bank and currently live in it. If I rent it out, does my mortgage interest rate change?”
Ludmila Yamalova
Typically, the interest rate on your mortgage does not change when you switch from living in the property to renting it out. However, I’d recommend reviewing your mortgage agreement. Some banks include clauses that could impact your interest rate if the property is rented out.
Host
Great advice as always, Ludmila. Thank you for joining us today. We’ll see you next time.
Ludmila Yamalova
Thank you. Always a pleasure!