Ownership of Real Estate – The Option of Owning and Purchasing Property via Corporate Vehicles
Real Estate & Construction and Hotels & Leisure
Dr. Ahmed AlawbthaniSenior Associate,Real Estate
Nour SrourAssociate,Corporate Structuring
In the UAE, property owners are granted real property rights in the following ways:
(a) a right to own on a freehold basis, without any limitation as to time (Freehold Title);
(b) Musataha rights which are real estate rights that allow the owner of the rights to occupy the underlying land and build improvements on that land which is owned by another (Musataha Rights). For the duration of the Musataha Right, the improvements made will belong to the holder of the Musataha Right. The rights can be granted for a term of up to 50 years, and can be renewable once for a further term of 49 years;
(c) Usufruct rights which are real estate rights that give the usufructuary the right to use and occupy the property of another, but without the ability to make physical changes or develop the property (Usufruct Rights) – however this can differ across the Emirates. These rights can be granted for terms of up to 99 years; and
(d) Long-term lease rights which are leasehold rights that can be granted for a maximum term of up to 99 years (Long-Term Lease Rights).
Real estate and property rights can be owned either by an individual or by corporate entities. Individuals can be categorized into UAE nationals, GCC nationals, and foreign nationals.
In general, ownership of real estate in the UAE is restricted to UAE and GCC nationals. Foreign nationals are allowed to obtain property rights only in specific permitted areas or ‘Designated Areas’. Designated Areas are expressly demarcated areas of land set aside as being available for foreign ownership and are known under differing languages across the Emirates.
A. Real Estate Ownership in Abu DhabiIn Abu Dhabi, the ownership of real estate is governed by Law No. 19 of 2005 and its amendments on Real Estate Ownership. Ownership of real estate is generally restricted to UAE nationals, companies fully owned by them and public joint-stock companies of which the percentage of UAE nationals is not less than 51%. The government poses restrictions on foreign nationals, granting them property rights in Designated Areas known as Investment Areas in Abu Dhabi, which include Al Reef, Saadiyat Island, Yas Island and Al Raha Beach among others.
B. Real Estate Ownership in DubaiIn Dubai, the ownership of real estate is governed by Law No. 7 of 2006 and its amendments on Real Estate Ownership. Ownership of real estate is generally restricted to UAE and GCC nationals, companies fully owned by them, and public joint-stock companies listed in the UAE or GCC. The government poses restrictions on foreign nationals, granting them property rights in Designated Areas known as Freehold Areas in Dubai, which include Dubai Multi Commodities Centre (DMCC), Dubai International Financial Centre (DIFC), Dubai Internet City, Dubai Healthcare City and Dubai South among others.
As an alternative to individual ownership, corporate and individual property investors may choose to own real estate property through corporate entities.
A. Advantages to Individuals of Using a Corporate Entity to Own PropertyThe primary objective of using a corporate entity as a vehicle to own real estate assets is to protect them from any potential liabilities as such corporate entities are not liable for their subsidiaries’ obligations and debts.
Furthermore, an additional degree of confidentiality and anonymity relating to ownership is added given that a corporate entity is a separate legal entity.
Owning real estate through a corporate entity such as a holding company is also a quick way to obtain a residency visa in the UAE. New visa routes are being made available and these visas may be renewed provided the company remains open.
Using a corporate entity may exempt property from the Sharia law of inheritance. Additionally, if incorporated in common law jurisdictions such as the Abu Dhabi Global Markets (ADGM) or DIFC, the procedures are greatly simplified. However, Sharia law may still be applicable to Muslim shareholders.
B. Advantages to Corporates of Using a Corporate Entity to Own PropertyA single corporate entity as an owner of multiple properties can help in consolidating real estate holdings for easier management and smooth facilitation of property transfer.
Generally, banking procedures and opening a corporate bank account can be a tedious struggle, especially for holding companies. This process can become easier once a company is able to demonstrate that it owns one or more properties.
A. Onshore CompaniesTitle to real estate in Freehold Areas is issued to entities registered onshore in the Dubai mainland.
B. Foreign Offshore CompaniesAn offshore company, not to be confused with a Free Zone company, is an entity that is not permitted to conduct any type of commercial activity in the UAE. Such entities are generally incorporated as holding companies. UAE companies with foreign shareholders are considered foreign companies for the purpose of property ownership by foreigners.In Dubai, all types of foreign offshore companies registered with the Department of Economy and Tourism (DET) were initially allowed to own real estate as freehold in the Emirate by the Dubai Land Department (DLD). However, since 2011, the DLD has restricted property ownership by offshore companies. Therefore, a company incorporated in, for example, the Cayman Islands, is not permitted to own property directly in Dubai. Only those offshore companies that are incorporated in certain free zones such as Jebel Ali Free Zone Authority (JAFZA), which is in particular a popular jurisdiction for the incorporation of such foreign offshore companies, and Ras Al Khaimah International Corporate Centre (RAK ICC) are permitted to own property as corporate holders in the Freehold Areas of Dubai. However, individuals or foreign offshore companies, for example a company incorporated in the Cayman Islands, could in turn own these JAFZA and RAK ICC offshore companies. In such situations, these offshore companies’ structure is the immediate entity holding the asset or property. However, when the offshore structure above these offshore companies is deemed to be “unduly complicated”, the DET reserves the right to reject it, as such complexity can suggest a wish to obscure beneficial ownership.
C. Free zone companiesForeign companies incorporated in certain free zones such as the DIFC, ADGM and DMCC among others are currently permitted to own property in the Freehold Areas in Dubai. In recent years, the preferred mode for acquiring property in Designated Areas in Dubai and Sharjah has been through the Special Purpose Vehicle (SPV). The ADGM is regarded as a popular jurisdiction to incorporate such an SPV due to it being cost efficient and there being no requirement to obtain any physical office space. Additionally, the incorporation process is handled digitally with no legalization attestation of documents required.
Given the current market activities in the real estate industry across the nation, individual and corporate investors may wish to consider purchasing real estate property using a corporate entity taking into consideration a range of factors, including the Tax aspect (which is not covered in this article) depending on their requirements. This specific subject matter is quite broad and dynamic, and therefore, all available options, their benefits, and relevant applicable laws and regulations must be taken into consideration before investors decide to set foot into this realm of ownership.
For further information,please contact Dr. Ahmed Alawbthani or Nour Srour.
Published in June 2023
