Investment options in Dubai for foreigners

Foreign InvestorsImage Credit: Supplied

Real estate investment is on the up as a result of Dubai’s economic growth. Bank lending has soared recently with money being poured into construction and real estate projects. While property prices are yet to match their previous peak levels, they have already increased substantially. JLL has even reported that prices could well be in line with 2008 values by the end of the year.

It is clear that asset markets are recovering rapidly and projects that were abandoned or delayed in the wake of the financial crisis are now resuming with greater foresight and regulation.

But it’s not just the property market that is booming. Growth is being felt across all sectors with the manufacturing, hospitality and tourism industries driving the economic recovery. Furthermore, this growth is predicted to continue as the world turns its gaze on the region with Dubai hosting the World Expo 2020 and Qatar the 2022 Fifa World Cup.

Investor confidence in the region is high, with the Dubai Land Department announcing real estate transactions worth Dh236 billion last year. Interestingly, international investors account for nearly half this figure (Dh114 billion), which indicates that Dubai has won back the trust of the international investment community.

Foreign ownership

Undoubtedly, this confidence has been restored as a result of the Dubai Government’s commitment to sector regulation. Citibank even suggests that the strong investor confidence, combined with low interest rates, political stability and high oil prices, will fuel the demand for property in the UAE.

In light of the growing appetite of foreign investors for Dubai real estate, it is important for property investors, developers and professionals to understand the dynamics of the legal environment in a post-recession Dubai.

Foreign investors are subject to property ownership restrictions in Dubai. Under Law No.7 of 2006 concerning land registration, foreign nationals or companies owned in any part by them are restricted from owning land or acquiring interests in land in Dubai. However, under Article 4, foreign nationals may acquire a freehold interest, a right of usufruct or a leasehold of up to 99 years in 23 areas listed in Article 3, including Dubai Marina, Jebel Ali and the Palm Jumeirah. More areas have since been added to the list.

While the law expressly states that foreign nationals and companies may have property rights in designated areas, in practice restrictions are applied in respect of British Virgin Islands or Cayman Island companies.

Corporate ownership

The Commercial Companies Law requires at least 51 per cent of the shares in a UAE company to be owned by a UAE national or companies owned by UAE nationals. Foreign ownership of companies is therefore restricted to 49 per cent of a company’s share capital.

Before making a move in the UAE, foreign investors will thus need to consider the structure of the company, how they want to operate in the region and what they aim to achieve. A common way to operate is through a limited liability company (LLC) with a UAE national holding at least 51 per cent of the share capital.

Registration and licensing requirements are applicable to LLCs, which make them suitable corporate structures for investors who want to open a long-term business in the local market.

Another way to operate is through a joint venture (JV) agreement between a foreign party and a local partner holding at least 51 per cent of the share capital. There is no requirement to publish the agreement or license the JV, which is generally recognized as a suitable corporate structure for companies working together on specific projects.

A new Foreign Investment Law may be issued, which would relax corporate foreign ownership restrictions in certain market sectors. However, the timeline for its publication is unclear at this stage.

Free zones

As defined under Law No.4 of 2001, free zones were established to encourage foreign investment in Dubai. They are located in specific areas where certain laws or restrictions on carrying out business activities do not apply.  The main benefits of investing in a free zone are:

1. Tax exemption: Free zones are considered to be outside Dubai’s customs territory and are therefore subject to different customs control laws. Businesses are exempt of import and export duties and corporation tax.

2. No foreign ownership restrictions: The corporate foreign ownership restrictions as detailed above do not apply in free zones. Foreign investors can own 100 per cent of their business without the need for a local sponsor.

3. Developed infrastructure and facilities: Free zones are developed around the requirements of one or more industries. For investors operating in the logistics sector, for example, the Jebel Ali Free Zone Authority, Dubai Logistics City and Dubai World Central Aviation City allow investors to maximise their logistical requirements by offering proximity to the surrounding infrastructure.

The main disadvantage of a free zone company is that it is confined to do business in the free zone where it is registered. It may conduct business outside of the free zone under a licence from relevant UAE authorities or through a registered commercial agent, representative or distributor licensed by UAE authorities.

Notably, a few free zones are within areas where foreign nationals may hold land. The common practice is for land to be leased from the relevant free zone authority for 15, 25 or 30 years on renewable terms.

Source: Duncan Pickering, Special to Property Weekly
Partner in the real estate group at DLA Piper Middle East and is admitted as a solicitor in England and Wales

Al Nisr Publishing accepts no liability for the views or opinions expressed in this article, or for the consequences of any actions taken on the basis of the information provided


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