From India to Dubai: Your Ultimate Real Estate Investment Guide
India Focus
Mohammed Kawasmi, Partner,Real Estate & Construction
Izabella Szadkowska,Partner,Corporate Structuring
Ena Tahric,Trainee Solicitor,Real Estate & Construction
The United Arab Emirates (UAE) real estate market has become a hotspot for investment opportunities, attracting global investors with its dynamic growth and lucrative prospects. Among them, Indian investors have shown a strong interest and presence in the UAE real estate sector, accounting for 20% of all real estate transactions during the first half of 2024.
The UAE offers a wealth of opportunities through incentives for foreign investors, streamlined processes for property transactions, and attractive returns on investment. Property investment in the UAE can qualify Indian investors for a golden visa, offering long-term residency benefits. The UAE Golden Visa program provides residency for investors who have an investment of at least AED 2 million in property. This further enhances the appeal of the market to Indian investors.
As the real estate market evolves, so does the legal framework, with foundations and trusts emerging as options for real estate ownership. These structures provide Indian investors with additional flexibility for holding real property in Dubai and are often utilised in structuring family assets. Additionally, musataha and usufruct agreements offer alternative ways to acquire rights over real property without full ownership.
This article delves into the latest legal updates, highlighting how Indian investors can leverage these developments for optimal real estate investment in the UAE.
A foundation is a separate legal entity that can hold assets but cannot engage in commercial activities. It is created by a founder who transfers assets and sets objectives and governance in a charter and by-laws. The founder initiates but does not own the foundation. The foundation may have beneficiaries and can serve either charitable or non-charitable purposes. It is governed by a council and may have a guardian to oversee its operations.
Foundations that can hold real property in Dubai are available in the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), each with its own regulations and requirements for establishment and operation. Therefore, seeking legal advice before selecting a jurisdiction is recommended.
A foundation is an attractive vehicle for owning real estate, as the details of the founder(s), council members, or the guardian remain confidential. The founder's personal assets are shielded from claims against the foundation.
Interestingly, under UAE Corporate Tax Law No. 47 of 2022, which imposes a corporate tax rate of 0% up to AED 375,000 and 9% above that, certain foundations can receive favorable tax treatment. Family foundations with only family members as beneficiaries and that do not engage in commercial activities may be considered "tax transparent," potentially allowing them to benefit from a tax-free status.
DIFC or ADGM foundations offer several advantages, making them an excellent option for owning real estate in Dubai.
A trust is not a legal entity but rather a legal relationship involving a settlor, trustee, and beneficiary, where the trustee holds and controls assets for the beneficiary's benefit. Trusts can be established for family or philanthropic purposes and are available in the DIFC, ADGM, and some offshore jurisdictions. Key advantages include the confidentiality of the settlor and beneficiaries. However, trust arrangements are not recognized for direct legal ownership of assets in GCC legal systems, which could create challenges for holding real property in Dubai.
Finally, real estate property in Dubai can be held by an ADGM SPV or a DIFC Prescribed Company (“DIFC PC”).
ADGM SPVs are entities formed for structuring purposes. They shouldn’t conduct actual business operations, cannot have employees, and can only be formed if the incorporating parties can prove a “nexus” to the UAE—economic substance and a link to the jurisdiction. They can be swiftly established and must use a registered address in the ADGM provided by an ADGM-licensed corporate service provider (“CSP”), which must also be appointed. The initial and annual license fee for an ADGM SPV is USD 1,900 per year.
Recognizing the need for a flexible and cost-efficient entity type for the business community and family enterprises, on July 15, 2024, the DIFC introduced a revamped Prescribed Company (“PC”) regime under the amended PC Regulations 2024 (“PC Regulations”). Under these regulations, any party intending to hold title to or control one or more GCC registrable assets (i.e., assets or property interests that must be registered with a GCC authority to establish legal ownership, secure rights, or claims against it, and provide public notice, such as a share certificate, commercial license, or title deed) can form a PC.
Specifically, the PC can be formed to own real estate assets in Dubai, even before the party acquires that real estate. The DIFC grants a six-month grace period from the PC formation to present proof of acquisition. The PC can be formed promptly and must use a registered address in the DIFC provided by a DIFC-licensed CSP. A PC cannot conduct business operations or employ staff, and has an initial and annual license fee of USD 1,100.
The Dubai Land Department (DLD) has approved foundations for holding real property and has signed an MoU with the DIFC, enabling DIFC-based entities, including foundations, to purchase and register properties with the DLD. This MoU streamlines land ownership registration and supports institutional investment in Dubai's real estate. Trusts, ADGM SPVs, and DIFC PCs can also hold property in Dubai.
While foundations and trusts are unfamiliar to GCC legal systems, ADGM SPVs and DIFC PCs, with their standard corporate structures, are more readily understood by UAE authorities.
Another way to acquire rights over real property in Dubai is through musataha or usufruct agreements. Musataha is a right to build on or use the land of another person for a fixed term, not exceeding 50 years, renewable for a similar term by mutual consent. Usufruct is a right to use and benefit from the property of another person, including any buildings or structures on it, for a fixed term, not exceeding 99 years. Both musataha and usufruct rights can be registered with the DLD and can be transferred, mortgaged, or inherited, subject to certain conditions and restrictions. Musataha and usufruct agreements can be attractive for Indian investors who wish to develop or use real estate projects in Dubai without acquiring full ownership of the land or property.
In line with UAE law developments on transparency and disclosure, the Dubai Land Department (DLD) requires disclosure of ultimate beneficial owners (UBOs) before approving property acquisitions by entities like foundations, trusts, or companies. Foundations must disclose the founder's name and nationality, while trusts, which cannot directly hold real estate, may use a corporate structure to hold property indirectly. Additionally, any changes in the founders of a foundation, trust arrangements, or the shareholding of ADGM Special Purpose Vehicles (SPVs) or DIFC Protected Cells (PCs) are treated as indirect changes in ownership, triggering DLD charges.
The DLD also imposes fees in relation to the transfer or sale of property pursuant to the Resolution No 30 of 2013.The DLD fees vary depending on the nature of each transaction and the disposed property right which. are assessed on a case-by-case basis. Generally, the DLD charges a fee of four percent (4%) for standard sale and purchase transactions. However, for transactions between first degree relatives or between same parties, including where corporate entities have the same UBOs, the DLD policy is to apply the gift fee. In comparison, the gift fee is significantly lower and is equivalent to naught point one two five percent (0.125%).
Dubai’s regulatory landscape continues to evolve, presenting Indian investors with a multitude of opportunities for strategic real estate investments. It is crucial for Indian investors to consider the various solutions available, stay informed about the changes to the legal framework, and seek professional advice. By leveraging the unique advantages offered by foundations, trusts, ADGM SPVs, and DIFC PCs, Indian investors can optimize their real estate investments and achieve their long-term goals efficiently. The combination of legal structures and the Golden Visa program makes Dubai an exceptionally attractive destination for Indian capital, promising both high returns and long-term stability.
For further information,please contact Mohammed Kawasmi, Izabella Szadkowska and Ena Tahric.
Published in September 2024
