Published July 2016
Article 4 of Law No. 7 of 2006 (“Dubai Property Law”), is the law governing real property ownership in Dubai and provides that the right to own property in the Emirate of Dubai is restricted to UAE (United Arab Emirates) and GCC (Gulf Cooperation Council countries) nationals and to companies wholly owned by them, as well as to public joint stock companies.
However, Article 4 also states that, subject to the approval of the Ruler of Dubai, non-nationals may be granted the following property rights in specific areas of Dubai (hereinafter referred to as “Designated Areas”):
A Designated Area is an area of land expressly demarcated and set aside as being available for foreign ownership. Designated Areas include The Palm Jumeirah, Emirates Hills, The Meadows, The Lakes, The Springs, Downtown Dubai, Dubai Marina and Jumeirah Lakes Towers. Most notably, the Designated Areas exclude most of Deira, Bur Dubai, Jumeirah and Umm Suqeim.
While property in a Designated Area can be owned by a UAE registered corporate entity, the Dubai Land Department (“DLD”) has placed restrictions on property ownership by offshore companies. Therefore, a BVI company is not permitted to own property in Dubai. The most common corporate ownership vehicle is a Jebel Ali Free Zone (“JAFZA”) offshore company. The DLD has not, however, applied any restrictions on the structure of the corporate offshore entity, so that a JAFZA incorporated offshore entity can, in turn, be owned either by an individual or a foreign company, such as a BVI company. In the event that it is desired that the shares in the BVI company be held under a trust structure, this is permissible.
Property transfer fees are to be paid to the DLD for the registration of real estate transactions. Currently, the transfer registration fee is 4% (four) of the current value of the property. The value is ascertained by the governmental authority of Dubai and values are available online. This being the case, the transfer fee will not necessarily be fixed to the purchase price as agreed between the buyer and the seller and is generally split equally between buyer and seller at the time of the transaction.
One of the primary reasons for electing to use an offshore company structure to purchase property in Dubai is the avoidance of Sharia-based inheritance procedures and the application of Federal Law No. 28 of 2005 on Personal Status (“Personal Status Law”).
To avoid the implications of Sharia law, the following two (2) options are generally available in connection with estate planning in Dubai:
As corporate entities do not fall under the personal status law, there would no issue of Sharia law applying.
As mentioned above, the only type of offshore company permitted to own property in Dubai is one which is incorporated through JAFZA. Commonly, the shares of the JAFZA offshore company are strategically held by another offshore company (to avoid Sharia-based inheritance law from applying to the individual shareholders of the JAFZA company), which is then often incorporated in a jurisdiction such as the BVI, which is subject to common law provisions, thus simplifying the inheritance procedures significantly.
Once the foreign national passes away, the shares of the JAFZA offshore company held by another offshore entity that is BVI can be transmitted in accordance with what laws will apply. Importantly, however, the Personal Status Law will not apply to the shares. It should be noted however that in the case of Muslim shareholders, the laws of the individual’s nationality may prevail and Sharia may still be applied.
The DIFC is a financial free zone established in accordance with United Arab Emirates Federal Law and administered by the Government of Dubai. The DIFC offers wills and probate registry services to non-Muslims giving them the right to choose the manner in which their estates in Dubai will be distributed. The will, once prepared, is signed and registered with the DIFC Wills and Probate Registry (“WPR”). Following the death of the testator, the executors can obtain a probate of the DIFC Will from the DIFC Court, which will be taken for execution to a Dubai Court.
It should be noted that the DIFC Wills and Probate Registry was launched very recently, on 30th April 2015. From a legal standpoint, a DIFC Will should be enforceable in respect of properties situated in Dubai. However, as the DIFC Will is a recent development, the manner and extent to which authorities are able to enforce a DIFC Will practically, remains untested.
The legal alert contained above is for informational purposes only and not for the purposes of providing any form of legal advice. You are requested to contact your legal counsel to obtain advice in respect of any particular issue or problem. Use of and access to this legal alert does not create any attorney-client relationship between Anjarwalla Collins & Haidermota, Legal Consultants and the user or browser.