Registering a property under an offshore firm

Registering a property under an offshore firmBeenish Haider - Corporate Associate, The Legal Group

Many individuals in Dubai float offshore companies to register properties under the company's name. Beenish Haider, corporate associate at The Legal Group (TLG), explains the pros and cons of the process.

Properties registered in JAFZA

The registration of a property in the name of an offshore company in Dubai can only take place within the Jebel Ali Free Zone Authority (JAFZA). Initially, the biggest advantage of doing this was to escape the application of the UAE inheritance law and sale transfer cost.

People die, but as a company continues, ownership by way of shares in the property of the offshore company also continues. Investors avoid the sale transfer cost by transferring shares from their offshore company to property buyers instead of transferring the property and paying the transfer fee at the Dubai Land Department (DLD). The registration of a property in the name of an offshore firm also has the benefit of retaining the confidentiality of shareholders. More so, there was no application of capital gains tax with respect to increase in the value of property.

However, the above advantages do not hold true anymore as DLD has started recording the names of shareholders in the title deed. Any change in shareholding will be treated as sale of the property subject to the sale registration fees.

On matters of inheritance, when a shareholder dies, the rules of survivorship do not apply. A shareholder's shares cannot be passed down to family members, resulting in the shares of the company in the name of the deceased being rendered ineffective for his heirs.

However, if the investors are a husband and a wife, both can be made joint shareholders in the company. The memorandum of association can specify that upon the death of one of the joint shareholders, the other shareholder will become the sole owner of the shares. Children can also be brought into the company as shareholders, providing a means of passing on the assets.

One of the biggest disadvantages is that retaining a property under the name of an offshore company requires payment of registration fees at the time of company incorporation as well as annual renewal fees.

DIFC Wills and Probate Registry

The Dubai International Financial Centre (DIFC) Wills and Probate Registry now entitles non-Muslim expats to transfer their assets according to their wishes upon their death. The DIFC Courts will work for the production of grants and court orders for the distribution of assets which will be directly enforceable in Dubai. For this, the parties will not have to go through the Dubai Courts.

The revision of the law for the registration of properties under offshore companies, clubbed with the introduction of the DIFC Wills and Probate Registry, has pushed expats to DIFC for the distribution of assets. The Registry also entitles homeowners to specify the beneficiaries of the estate, not leaving inheritance subject to survivorship. It is expected that the registration of wills and the production of grants and court orders will also take less time, and involve less costs and hassles compared to the registration of offshore companies where one has to pay annual renewal fees. The new DIFC law also entitles persons who are making wills to nominate guardians for their minor children. This option is not available for offshore firms.

Therefore, expatriates now increasingly prefer the DIFC law for the distribution of assets rather than explore other options like floating offshore companies.

Property laws in DIFC

DIFC is a free zone that has a separate jurisdiction and is not subject to the regular jurisdiction of the Dubai Courts. Unlike the UAE property law, disputes relating to properties in DIFC have to be referred to the DIFC Courts and are governed by the DIFC Property Law. Previously, disputed matters could be referred to DIFC Courts where there was a connect to the subject matter of the dispute, or either the parties concluding the transaction were located in DIFC, or such transaction was concluded in DIFC. Upon amendment of the DIFC Property Law in October 2011, parties can now opt to resolve disputes in DIFC Courts irrespective of the location of the contracting parties.

Required documents

A company registered in JAFZA looking to register a property under its name can only do so if the object of the company includes purchasing real estate. Some of the documents required to register the property include a no objection certificate from JAFZA, the Dubai Land Department and the developer of the property consenting to the registration of the property in the name of an offshore company. If the company's activities do not include purchasing or owning real estate, one must submit a shareholders resolution, giving authorisation to the company to purchase property.

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Source: S. Dhar, Special to Freehold

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