Foreign investors purchasing property in Dubai are paying the least level of taxes and transaction costs globally, which is even cheaper than Mumbai, London, Paris and Hong Kong, as per new report by property expert Knight Frank, a top professional services firm.
The Global Tax Report 2015 analyzes the purchasing, holding and selling costs for foreign buyers of prime residential property over a five-year period (2010-2015), and offer illustrative taxation costs in 15 major cities worldwide.
The international investors are offered the least property costs in Shanghai, China globally, while they are offered lowest taxation in Monaco, the independent microstate on France’s Mediterranean coastline, when they purchase a property worth $1million and $10million.
The cost of taxes are the highest in Sao Paulo (Brazil), the report said, which analysed the costs for individuals purchasing property in their own name as an investment to rent out over the five-year period.
In Dubai, where the property yields can go as high as 8 percent, has a tax cost of 3.6 percent of property price during the five-year period, a fraction behind Monaco (with tax cost of 3.5 percent).
Taking into consideration the tax costs, Dubai and Paris follow Monaco which offers low tax levels for non-residents purchasing property at $1mn level. The investors here incur combined tax charges of 3.6 percent and 7 percent respectively over the five-year period.
The level of taxation remains the same even when purchasing $10mn property, while in Paris the figure jumps to 12.8 percent, the report said.
The global head of research at Knight Frank, Liam Bailey, when speaking on how property costs and taxes compare around the world, said while Shanghai and Monaco offer favourable property and taxation costs at 2.9 percent and 3.5 percent respectively, other cities have produced interesting results.
Hong Kong and Singapore offer low property costs at 3.7 percent and 4.3 percent respectively for a $1mn property, but the stamp duties for foreign buyers implies taxes are comparatively high at 22.4 percent and 19 percent respectively, explained Bailey.
The overall cost of property remains much the same for $1mn and $10mn property in cities like Mumbai (India), Geneva (Switzerland) and Sao Paulo, while others such as New York (US) and Paris notice considerable reduction in percentage terms at the $10mn level.
According to Carolyn Steppler, the private client tax services partner at EY for UK and Ireland, when purchasing property as an investment, tax is not necessarily the first concern, but it is important as it is often the after-tax return that measures the success of investment.
She further said that research indicates that tax burden across the cities vary considerably in terms of amount and extent. But, the common thread across all these countries that shows no sign of slowing is a continuous focus on property as a source of taxation.
Steppler pointed out that wealth flows, changes in taxation, currency shifts and fluctuation in supply and demand levels have all had a bearing on the performance of prime residential markets across the world.
As the rate of price growth slows in several global city markets, investors are highly concerned about transaction costs and taxation. Knight Frank pointed out that policy makers are increasingly using tax and property costs as a means of regulating housing demand, controlling affordability and generating revenue. Therefore, in the next few years, it may be worth noting how the current situation will change in each of the 15 cities.