What Facebook’s VAT for UAE ads means for the real estate industry

As a real estate professional, developer, broker, you know that one of the first places your potential clients search for a home is online. According to a 2019 study by the National Association of Realtors (NAR) ¹, 98% of millennials (and 89% of baby boomers) begin their home search online! Which is why engaging online with this generation of homebuyers has become critical to business success. However, even within the online space, realtors cite social media as the best source for generating high-quality leads. Facebook, which initially started off as a personal social network, has today become a key marketing tool for real estate agents to increase their buyer and seller leads. And with nearly 82% of UAE’s population (7.9 million people approx.) using Facebook ², FB ads have become the mainstay of real estate promotions in UAE. Against this backdrop, the recent announcement by Facebook to levy a 5% VAT on all UAE real estate ads is bound to have some effect on the real estate market.

Lets take a deeper look at taxation systems, VAT and UAE real estate to understand the impact.

The concept of digital-aware tax regimes comes to UAE

Many countries have in recent years begun to consider the economic implications of an increasingly digital world. In fact, intergovernmental bodies like the European Commission and the Organisation for Economic Co-operation and Development have long been discussing and debating the idea of digital taxation. But what has led global governments to consider introducing digital taxation policies? The answer is simple. Social network and tech giants like Google, Facebook and Twitter are immensely popular around the world, with millions of users logging in each day. The popularity of these platforms brought together people from around the world into a single space that was ripe for the picking for advertisers. This led to an exponential growth in digital marketing and associated capital investment. And it is in this evolving digital environment that governments around the world have begun to realize that the existing tax protocols may no longer be viable.

Recognizing the value of their citizens’ contributions to the profits of big tech, many countries have unveiled policies to bring these firms under the ambit of their tax regimes. And now, digital giants such as Alphabet Inc and Facebook have in turn levied value added taxes, or VAT, on advertisers who use their platforms for marketing activities. Facebook has been front and center in this development, in no small measure, because of its monopoly over social media marketing.

Facebook has already introduced VATs for its ad services in different countries, and recently announced a 5% VAT for ads purchased in the UAE. Notably, Facebook’s VAT announcement comes on the back of a larger implementation of VAT in the UAE since January 2018.

According to the social media giant’s statement, advertisers whose “sold to” country is set to UAE, and who have not added a tax registration number (TRN) to their Facebook ad account, will be liable to pay the 5% VAT. The company also directed businesses through the process of adding a TRN to their account; businesses that provide their TRN, will not be charged by Facebook.³

The soaring popularity of Facebook in UAE

Globally, Facebook has been a lucrative avenue for real estate agents & developers to reach out to clients by making it easier to create and share visually appealing ads in multiple formats. Real estate advertising and marketing was once restricted to sending out flyers, placing newspaper ads, conducting door-to-door informational campaigns, and waiting for the client to discover you. The Internet, and subsequently social media, proved to be a disruptor to this traditional model, making lead generation and client engagement far easier. Facebook, being a personal socializing network, made it a perfect target for B2C advertisers, enabling them to target audiences based on criteria like age, gender, interests, and even areas codes.

Facebook’s boasts nearly 8 million users in UAE, or about 82% of the total population. People in the UAE spend as much as 3 hours and 11 minutes a day on social media platforms,⁴ and with Facebook being the most preferred, it is no wonder that advertisers are drawn to the platform, hoping to reach a sizeable audience. Facebook is thus a prime platform for real estate advertising, and hence, the new tax rule will have a tangible impact on digital marketing for real estate in the UAE.

Implications of Facebook’s VAT policy: Small players to feel the impact more than larger enterprises

The implications of Facebook’s new tax on ads should be assessed through the lens of business size as well as changes in audience targeting options. Although real estate companies plan for marketing activities, small- and medium-sized firms may have to consider a minor restructuring in their budgets, depending on the scale of their marketing goals, to allow for the increased expenditure on ads on Facebook. On the other hand, larger firms that are VAT registered, will not get impacted.

Although the 5% VAT will not discourage advertising on Facebook, it may alter ad strategies and the way ads are crafted. Instead of trying to reach a broader audience, real estate advertisers may divert their attention to more targeted marketing. By narrowing the target audience, advertisers will likely cut down on expenditure but could lose out on some potential clients. With a smaller target audience, advertisers will likely focus on learning more about customer behavior patterns, in a bid to leverage their new marketing strategy.

Facebook’s VAT rate of 5% is not only reasonable but also far lower than in other leading markets (in Russia, for instance, ads are subjected to a 20% VAT, and in South Korea, ads are charged a 10% VAT).

Importantly, Facebook’s VAT introduction coincides with a watershed moment in the real estate market. Industry leaders and policymakers are undertaking multiple initiatives to curb fraudulent ads, reduce ambiguities and promote transparency across the space. This could only mean good things for the industry in 2020 and beyond.