In this article we discuss the guidelines issued by the Dubai Land Department (“DLD“) applicable from 1 January 2011 in relation to companies incorporated outside the United Arab Emirates (“UAE“) or otherwise treated as offshore.
The new guidelines provide that with effect from 1 January 2011, only companies registered as offshore entities within the Jebel Ali Free Zone (“JAFZ“) are eligible to register real property rights with the DLD.
In terms of the new guidelines, in order to apply for registration of a real property right, the JAZF offshore entity will need to submit to the DLD a JAFZ registration certificate (attaching the company’s shareholder certificate(s) and memorandum of association) and a separate undertaking to notify the DLD of any change to the share ownership of the company.
The guidelines do not apply retrospectively. Offshore companies’ currently holding title deeds issued by the DLD in relation to interests in real estate in Dubai shall not be affected by these new guidelines.
The guidelines are generally perceived to be an attempt to ensure that due diligence is carried out in relation to the identity of those who ultimately own real estate interests in Dubai. This would explain the requirement for an undertaking to notify the DLD of any changes in share ownership after a property is registered. It is not clear why JAFZ was chosen as the conduit for foreign ownership, as opposed to (or perhaps in conjunction with) other offshore jurisdictions within Dubai such as the Dubai International Finance Centre.
The requirement for JAFZ registration is an addition to the existing laws. To recap, Dubai laws provide the following in relation to individuals and companies owning properties as freehold not limited by time, or usufruct rights or hire rights for a period not exceeding (99) years in Dubai:
Law No. (7) of 2006 Concerning Real Property Registration in the Emirate of Dubai at Article (4) provides that:
“The right to own Real Property in the Emirate shall be restricted to UAE and GCC nationals and to companies owned in full by them and to public joint stock companies. Subject to the Ruler’s approval and in specific areas in the Emirate as determined by him, non-national persons may be granted the following rights:
A. The right to freehold ownership without time restrictions; or
B. Usufruct right or leasehold right over a Real Property for a period not exceeding 99 years.”
Regulation No. (3) of 2006 Specifying Areas where Non-Locals can own property in the Emirate of Dubai at Article (3) provides as follows:
“Non-locals may own properties as freehold not limited by time, or may have the usufruct right or hireright for a period not exceeding (99) years in the plot or plots shown opposite each of the under- mentioned areas according to the maps issued by the Department and attached with this Regulation”.
23 freehold areas were described in Regulation No. (3) of 2006 and subsequent regulations demarcating additional freehold areas were published over the last few years.
As a result of the Dubai Laws and Regulations, many investors opted to establish a company in an offshore jurisdiction such as the Cayman Islands, Bermuda etc. because of the many benefits of using an offshore corporate vehicle, which include avoiding inheritance issues, being able to bring investors together, often as part of a fund or trust arrangement, enabling future entries and exits from the ownership of the underlying asset to be achieved as share transfers rather than land transfers, thereby avoiding the levy of fees and charges.
In closing, it is not clear whether the Dubai Government will issue primary legislation amending the existing laws in due course.
For more information about this article, please contact Ashraf El Motei at firstname.lastname@example.org