Published September 2016
Property inheritance within UAE jurisdiction, can often prove to be challenging for investors who are conscience of the impacts of the same. In the Emirate of Dubai, for non-Muslims the option of creating a will to better protect these assets post-mortem (recently further upgraded through the creation of the Wills and Probate Register within the DIFC), is readily available, this option is unavailable for Muslim property owners under the current regulations. While alternative options are available to protect such assets, a common solution often being sought by Muslim property owners is the gifting or ‘Hiba’ of their properties to their appointed heirs.
A Hiba may be made between individuals, individuals to a company or vice versa. Gifting is the voluntary transfer of ownership of a property from one individual to another. The individual creating the Hiba is referred to as the donor and the individual/company to whom the Hiba is made is referred to as the donee. The Hiba can be in full or part of the intended property. This is often seen where the donor wishes to maintain a portion of the property in their name while including their spouses, children or family owned enterprise on the title of the property to ensure the protection of their rights over the same.
Under current Dubai property regulations, transfer of title of real estate will realize a stamp duty of 4% imposed by the Dubai Land Department to be paid upon any transfer of title. A Hiba is exempt from this fee and is subject to a stamp duty of only 0.125% payable on the portion of the transfer i.e. an instance where a husband wishes to transfer to his wife 50% of the property, he would do so as a Hiba and would be subject to a stamp duty of 0.125% of the value of the portion of the property to be transferred and not the full value of the property. The value of the property is determined by the Land Department at the time of the transfer and in accordance with current market rates.
A Hiba is only permitted between first-degree relatives, even where such relatives may be owners of a company in which the donor is also a shareholder in instances where the Hiba is made in favor of a company rather than an individual. This relationship is defined as one of the following:
1. Parents to child or vice versa; and
2. Husband to wife or vice versa.
A Hiba may also be made between an individual and a company wholly owned by the same individual and vice versa. While it is possible to gift a property to a family held company in instances where the shareholders are within the line of ‘first-degree’ relatives, the process would need to be examined on a case-by-case basis as there may be more than one Hiba required to complete the transaction. It is interesting to note that siblings are not considered ‘first-degree’ relatives for the purpose of a Hiba and while a solution does exist it may involve a Hiba being created from one sibling to a parent, followed by a second Hiba from the parent to the second sibling. It should also be noted, that in instances where a step-parent or step-child is included, this would not fall within the ambit of a ‘first-degree’ relation. A solution does exist although may involve more than one transfer to take place in order to successfully complete.
Finally, the completion of a Hiba will require a host supporting documents which, if issued from a foreign jurisdiction, will require a lengthy legalization process to be undertaken before the Hiba may take effect in Dubai and the completion of the entire Hiba process is expected to take 4 – 6 weeks.
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