17 May 2021
It's easy to see why Dubai real estate is so attractive to potential investors. The UAE is politically stable, offers a high standard of living, and provides a safe and secure environment for all nationalities. But what ownership structure should you adopt when purchasing real estate in the region?
When considering structure options, you should first identify:
Your position will be different depending on whether the real estate is in one of the areas designated for foreign ownership and whether the parties involved are GCC nationals or companies wholly owned by GCC nationals.
Prior to 2002, real estate in Dubai could only be officially owned by GGC nationals and Dubai companies wholly owned by GCC nationals. With the establishment of developers such as Nakheel and Emaar, and the development of prime residential areas including The Palm Jumeirah, Emirates Hills and Dubai Marina, the Dubai government mandated freehold ownership by foreigners in certain areas.
The position was ratified in 2006 when a law passed that identified a number of "Designated Areas" where non-GCC nationals and companies owned by non-GCC nationals could own property. The list of Designated Areas is ever-expanding and now includes:
Whether you choose to purchase real estate in your own name or through a corporate vehicle can depend on several factors. Concerns over tax implications, inheritance planning, asset protection and anonymity all need to be weighed up before deciding how to proceed, but your preferred structure must then be acceptable to the Dubai authorities.
GCC nationals (including UAE nationals) and Dubai companies wholly owned by GCC nationals can still own real estate anywhere in Dubai. Since 2006, the Dubai Land Department (DLD) has developed policies for Designated Areas, governing the rights of non-GCC individuals and non-GCC corporate entities to be registered as owners of freehold title.
The current position is summarised below:
The development of the DLD’s policies over the years has resulted in several legal issues that prospective real estate buyers should be aware of.
A foreign offshore company (eg BVI, Cayman, or Channel Islands) can own a JAFZ/RAKICC Free Zone company and through that entity, they can own property in a Designated Area. This is a commonly adopted structure, often utilising a JAFZ Offshore company as the immediate asset-holding entity.
However, there is one caveat: if the offshore structure above the JAFZ offshore company is deemed to be "unduly complicated", the DLD reserves the right to reject it. As a rule of thumb, any structure that involves more than one foreign corporate entity above the JAFZ entity is likely to be questioned.
Complexity can suggest a wish to obscure beneficial ownership, which is why the DLD often rejects such proposals.
If a foreign trust features in the foreign ownership structure, the DLD is likely to reject it. It may be possible to secure an exception to the general rule, but this would require the trust arrangement to be clear and capable of being proved by a simple legal document (usually the Deed of Trust). Again, complex trust arrangements can lead the DLD to suspect an attempt to disguise beneficial ownership.
Ownership structures that were previously approved by the DLD may no longer be acceptable.
For example, we are often instructed to advise on real estate sales out of structures that include foreign trusts. Here, the DLD may request that the structure is simplified, and beneficial ownership more clearly established, before it approves any sale of the underlying assets.
Timing in this scenario is often an issue, as willing buyers are unlikely to wait for an offshore restructure to be considered, proposed, approved, implemented and proved to the authorities. This can expose the seller to penalties if a binding agreement to sell has been signed prior to any DLD request for the structure to be amended.
Changes to ownership structures at any level can be deemed changes to the ownership of the underlying asset, triggering a DLD transfer fee based on the percentage ownership change. The transfer fee is currently 4% of the deemed value of the property.
Don't fall into the trap of assuming that this change won't get the attention of the DLD. On any transfer, the selling entity must produce fully legalised documentation evidencing its complete ownership structure, which includes registers of shareholder changes at each level. These documents are used to determine whether there has been any deemed change of ownership of the underlying asset since its acquisition.
The Dubai real estate market continues to be a popular investment destination, however, to maximise the value of that investment, you must create the right structure.
We can assist in analysing your circumstances, considering the location of the real estate you'd like to purchase and recommending a structure that not only works for you, but also complies with the applicable laws and policies of the DLD.