The advantages and disadvantages of the most common ownership structures in Dubai.
1. Individual ownership
One of the most common forms of property ownership is to have the title registered in your name.
Pros: It’s simple, quick and easy to buy and sell the property. You just have to go to the Dubai Land Department (DLD) with your passport and sign the documents or appoint a representative under a power of attorney to sign for you. When the speed of buying and selling was of the essence, individual ownership enabled flippers to move in and out of property investments with the agility of a feline ninja.
Cons: Inheritance has always been a grey area and individual ownership exposes you to the uncertainties of the Dubai Courts deciding on succession issues regarding the property. For some nationalities, there are also tax implications with rental income and capital gains both possibly falling within reach of the sharp claws of foreign tax regimes.
2. Joint individual ownership
This is most commonly seen in the case of married couples.
Pros: It benefits from the same advantages as single individual ownership, in that it is simple, quick and easy to transfer title, albeit you have two people to coordinate with rather than one.
Cons: You have the same concerns regarding inheritance and tax as with individual ownership. In addition, you should be aware that unlike some jurisdictions where jointly owned property automatically reverts to the surviving spouse, in Dubai the deceased’s share is passed on to his or her heirs and not the surviving spouse.
3. Traditional offshore company ownership
This was a popular form of ownership where investors registered real estate assets in the names of corporate entities established in traditional offshore jurisdictions such as the British Virgin Islands and the Cayman Islands.
Pros: Corporate ownership avoids the uncertainty of local succession laws, as the company never dies so there is no local inheritance play. Some owners have sought to transfer the shares in the corporate entity to buyers, rather than transfer the property, thereby avoiding the 2 per cent transfer fee otherwise payable to the DLD.
Cons: Setting up the right offshore structure can take time. It needs to be considered properly with the right advisers and the right paperwork. There are obviously set-up fees payable to the corporate service providers and, thereafter, annual fees to keep the company in good standing on the offshore register. The main disadvantage, however, is a little more fundamental — it is no longer legally permissible for property to be registered with the DLD in the name of any offshore company other than a Jebel Ali Free Zone offshore company (see below).
4. Jebel Ali Free Zone (Jafza) offshore company
Since the DLD issued guidelines in 2011 prohibiting any new registration of property in the name of foreign offshore companies, investors looking to create a corporate ownership structure have had little option but to buy in the name of Jafza offshore companies.
Pros: These corporate entities are relatively quick and easy to set up. The Jafza offshore company, in turn, can be owned by an offshore entity established in a traditional offshore jurisdiction. In that case, the benefits increase. There will be no application of local succession laws as the inheritance of the shares in the traditional offshore company will be governed by the laws of that company’s jurisdiction. Also, the structure provides flexibility and the shares in the offshore jurisdiction may be settled into a trust or transferred to a foundation. That gives almost endless options to suit your requirements, whether the avoidance of forced heirship, tax mitigation, secrecy, philanthropic gifts or any other legitimate aim.
Cons: As with all corporate structures, they take time and cost money to put in place. In the heady days of flipping, many potentially lucrative deals were lost in the time it took a clever lawyer to advise on the advantages of an offshore structure, let alone set one up.
There are indeed many ways to skin the Dubai real estate cat. No one method fits all. The one that’s right for you will depend on many factors, including the time frame involved, costs, religion, local regulations, tax implications and the quality of your advisers.
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