UAE: Investing in real estate – why investors should consider ownership through corporate vehicles

published on 18 December 2023 | reading time approx. 4 minutes

The real estate market in the United Arab Emirates (UAE) is experiencing a significant boom since the Covid-19 pandemic: record-breaking numbers of transactions with an increase of more than 60 percent compared to pre-pandemic figures are being set. While investors may initially conceptualize their investment as individuals, upon closer scrutiny, investors are well advised to consider structuring the investment through a corporate entity. In this article, we present the legal possibilities and potential benefits of such structuring.

Types of Ownership Rights in the UAE »
Advantages of Ownership through Corporate Entities »
Eligibility of Corporate Ownership of Real Estate in Dubai »
Conclusion »

The UAE, particularly the Emirate of Dubai, is a favored market for good reason: In addition to relatively affordable real estate prices, the UAE offers political and economic stability, well-developed infrastructure, a high quality of life, and is considered a liberal business hub for international investors.

Types of Ownership Rights in the UAE

Typically, real estate ownership in the UAE is limited to UAE and GCC nationals. Foreign investors are permitted to acquire property rights solely in designated zones. These areas are explicitly identified parcels of land reserved for foreign ownership and are known by various terms across the Emirates.

In the UAE, property owners are conferred real property rights through the following mechanisms:

Freehold: This grants the right of unrestricted ownership without any temporal limitations and is the most superior and common right in the UAE.
Leasehold: This right refers to a property arrangement where the investor, or the tenant in this case, has the right to use and occupy a property for a specified period (of up to 99 years), as outlined in a lease agreement to be concluded with the seller, or the landlord. The landlord retains ownership, and at the end of the lease term, the property usually reverts to the landlord unless there are provisions for renewal.
Musataha: This right permits the holder to occupy and erect improvements on land owned by another party (the holder of the Musataha right). During its lifetime, the constructed improvements become the property of the Musataha right holder. These rights may be granted for a period of up to 50 years, with the option of renewal for an additional 49 years.
Usufruct: Encompassing real estate rights that afford the usufructuary the privilege to use and inhabit another's property, albeit without the authority to effect physical alterations or develop the property. These rights can be conferred for durations of up to 99 years.

Real estate and property rights may be owned by an individual or corporate entities. In some cases, foreign investors are well advised to consider the alternative ownership via a corporate entity instead of individual ownership.

Advantages of Ownership through Corporate Entities

The principal aim of utilizing a corporate entity as a vehicle for real estate asset ownership is to shield said assets from prospective liabilities, as corporate entities are not held liable for the obligations and debts of their subsidiaries.

Moreover, the consolidation of diverse real estate holdings and the smooth facilitation of property transfers can be achieved through the ownership of multiple properties by a singular corporate entity. In this context, investors should bear in mind that changes in the shareholder structure of the corporate entity owning the real estate will not trigger the mandatory governmental transactions fees being 4 percent of the sale price by the Dubai Land Department (DLD) as opposed to change of ownership of jointly owned properties between individuals.

Tipp:

In case a property is already owned by an individual who now wishes to transfer it to a corporate entity solely owned by the same individual as shareholder (hence, eventually being the same owner), such transaction would be considered a gift, triggering reduced DLD fees of 0.125 percent only.

Lastly, the adoption of a corporate structure introduces an additional layer of confidentiality and anonymity pertaining to ownership, given the distinct legal personality of the corporate entity.

Eligibility of Corporate Ownership of Real Estate in Dubai

Ownership in property rights is limited to certain corporate forms in Dubai, as described below.

On-Shore (Mainland)

Mainland companies, notwithstanding of any licensed activity, are currently eligible to own real estate in Dubai, including letting these assets.

Offshore Companies

Offshore companies are legal entities which are not licensed to conduct an operational business activity within the UAE and are mostly formed as holding companies. Foreign offshore companies outside the UAE, for instance, located within the jurisdictions of the Cayman Islands or British Virgin Islands, are not permitted to own any real estate in Dubai. As an exemption to this general rule, only offshore companies currently established in the Jebel Ali Free Zone (JAFZA) can own properties in Dubai. Likewise, entities licensed by the Ras al Khaimah Economic Zone (RAKEZ) and Ras Al Khaimah International Corporate Center (RAKICC) can register ownership of real estate.

The DLD is reluctant in accepting complex shareholder structures of offshore companies registered in the aforementioned free zones, for instance, if the shareholder of such company would be a complex holding licensed in Cayman Islands. The eligibility to own real estate property in these cases must be thoroughly assessed beforehand.

Free Zone Companies

Free zone companies (other than offshore companies) in the major free zones of the UAE, including the Dubai International Financial Centre (DIFC) and the Dubai Multi Commodities Centre (DMCC), as well as the Abu Dhabi Global Market (ADGM), are permitted to own real estate in Dubai. In most cases, a no-objection-letter by the licensing authority must be obtained and presented to the DLD during the transfer of ownership.

SPV company in ADGM

It is noteworthy to mention that ADGM offers investors the option to establish a “Special Purpose Vehicle” (SPV). This is a type of non-operating company established for a specific purpose, mainly for holding shares in companies, IP right as well as real estate. The costs of setting up an SPV are less compared to a usual free zone company. Another benefit of setting up in ADGM is that registration is entirely online, and no legalization of foreign corporate documents is required (but rather an attestation by the senior management of the foreign company or a third-party authorized to attest such documents).

Conclusion

Given the potential advantages, investors interested in the real estate market in the UAE are well advised to consider ownership through a corporate entity. Considering the vast and dynamic nature of this specific subject, thorough evaluation of all available options, their respective benefits, and the applicable laws and regulations should be done before venturing into this domain of ownership.

For more information related to potential tax implications on corporate entities owning real estate in the UAE, read our article „UAE: Real Estate Investors and Taxes – what are the consequences of the introduction of corporate income tax”.