Foreign investors buying property in Dubai, UAE, have to pay one of the lowest levels of taxes and transaction costs globally, even cheaper than London, Mumbai, Paris and Hong Kong, according to a new report by property expert Knight Frank and top professional services firm EY.

The Global Tax Report 2015, analyses the buying, holding and selling costs for foreign buyers of prime residential property over a five year period (2010 – 2015) as well as providing illustrative taxation costs in 15 key cities worldwide.

The international investors are offered the lowest property costs in Shanghai (China) globally, while they get to enjoy the lowest taxation in Monaco, an independent microstate on France’s Mediterranean coastline, when purchasing a property worth $1 million and $10 million. The tax costs are the highest in Sao Paulo (Brazil), stated the report which analyses the costs for individuals buying property in their own name as an investment, to rent out over the five-year period.

The emirate, where property yields can go as high as 8 per cent per year, has a tax cost of 3.6 per cent of the property price over a five-year period, a fraction behind Monaco, where the tax cost is 3.5 per cent.

Considering the tax costs however, Dubai and Paris (France) follow Monaco offering low tax levels for non-residents purchasing property at the $1 million level. Investors here incur combined tax charges of 3.6 per cent  and seven per cent  respectively over the five-year period.

This level of taxation remains roughly the same when purchasing a $10 million property however Paris sees its percentage figure jump to 12.8 per cent, stated the report.

Liam Bailey, the global head of research at Knight Frank, said: "We are often asked how property costs and taxes compare around the world. While Shanghai and Monaco offer favourable property and taxation costs (2.9 per cent and 3.5 per cent respectively), other cities have produced interesting results."

"Hong Kong and Singapore for example, offer low property costs at 3.7 per cent and 4.3 per cent respectively for a $1 million property but the stamp duties for foreign buyers mean taxes are relatively high at 22.4 per cent and 19 per cent respectively," explained Bailey.
 
According to him, the overall property costs remain largely the same for a $1 million and $10 million property in cities such as Mumbai (India), Geneva (Switzerland) and Sao Paulo, whilst others such as New York (US) and Paris see a significant reduction in percentage terms at the $10 million level.

Carolyn Steppler, the private client tax services partner at EY for UK & Ireland, said: “When purchasing property as an investment, tax is not necessarily the first concern but it is important because it is often the after-tax return that measures the success of the investment."

"Our research shows that the tax burden across the cities in this report varies considerably both in amount and extent. From 3.5 per cent or 3.6 per cent of the property price in year five in Monaco and Dubai respectively, to over 30 per cent  in Sao Paolo. However a common thread across all these countries, which shows no sign of slowing, is a continuing focus on property as a source of taxation," she stated.

Steppler pointed out that currency shifts, wealth flows, tax changes and fluctuating levels of supply and demand have all had a bearing on the performance of prime residential markets worldwide.

As the rate of price growth slows in many global city markets, transaction costs and taxation are becoming increasingly important considerations for investorsm, she stated.

London sits neatly in the middle of the 15 cities when analysing both property costs and tax costs. Foreign investors are charged 7.8 per cent and 5.4 per cent respectively in property costs when buying at the $1 million and $10 million level. Looking at the tax costs - including stamp duty land tax, investors buying in their own name expect to pay 9.7 per cent for $1 million investment and 20.7 per cent for $10 million, according to the report.

When analysing those cities where property costs are highest, Knight Frank and EY have determined Paris (15.3 per cent ), German city of Berlin (13.3 per cent ) and Geneva (12.6 per cent ) to impact foreign investors with the highest property costs at the $1 million mark.

Interestingly, Geneva replaces Paris when considering property costs at the $10 million level, charging investors 13.2 per cent of the five year sales price, followed by Berlin (11.3 per cent ) and Monaco (10.8 per cent ), it stated.

Considering the tax costs across the 15 cities, it is a different story. Taxation is highest in Sao Paulo, costing investors 31.5 per cent over the five-year period followed by Hong Kong where investors are charged 22.4 per cent of the $1 million property cost over a five-year period, according to Knight Frank.

However, Australian city of Sydney replaces Hong Kong at the $10 million mark charging foreign buyers 26 per cent  in tax, it stated.

Knight Frank pointed out that policymakers were increasingly using tax and property costs as a means of regulating housing demand, controlling affordability and generating revenue. It will be interesting to see how the current situation in each of the 15 cities will change in the coming years, it added.-TradeArabia News Service