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Dubai - Property ownership through company structures

Contributed by Sovereign Group
08 January, 2013

Contributed by Sovereign Group [SovereignGroup.com]

What is the problem?

One of the primary concerns for a non-UAE national living in the UAE is whether the UAE courts would have jurisdiction in respect of inheritance issues and whether their assets would be subject to UAE laws and regulations, in particular Shari’ah law.

The Civil Code provides that assets of non-UAE national residents located outside the UAE will be governed by the inheritance laws of the applicable foreign jurisdiction of which the deceased was a national at the time of death. Real property located in the UAE, however, will be subject to UAE inheritance law and in turn to the jurisdiction of the Shari’ah courts regardless of the nationality or religion of the deceased.

This area of the law remains largely untested. The Shari’ah courts may propose that they will follow the laws of the deceased's home country, but this is not guaranteed and procedures can be complicated, time-consuming and expensive.

What is the solution?

The most straightforward way to ensure certainty regarding real property ownership and avoid the application of Shari’ah law on inheritance is to purchase a property via an offshore company. Since 1 January 2011, the Jebel Ali Free Zone (JAFZA) offshore company is the only offshore company that is permitted to own property in Dubai.

If this JAFZA is in turn 100%-owned by BVI offshore company then the underlying asset will be governed under English common law and will therefore be protected from local inheritance laws. Principles of English common law and equity are extended to the British Virgin Islands by statute. This simplifies inheritance procedures significantly.

If the investors are a husband and wife, both spouses can be made joint shareholders in the BVI Company. The Memorandum of Association can stipulate 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 through the offshore company.

A typical property ownership structure might therefore be established as follows:

Other assets

The same issues apply to shares held in local free zone or limited liability (LLC) companies. Any assets held in an individual’s name upon their death, including company shares and bank accounts, may be frozen until the deceased’s estate has received probate.

Clients holding shares in their own name should consider transferring such shareholdings into an offshore entity. There is no requirement for a UAE offshore company to be included in the ownership structure in this case. The majority of foreign offshore companies can hold the shares of local companies, thus providing that the underlying assets will be governed by the inheritance laws of the applicable foreign jurisdiction.

For further information on property ownership in Dubai, please contact the author of this article, Jason Bowers at jbowers@sovereigngroup.com or telephone 971 (0)4 448 6010 (Cellphone: 971 (0)50 100 4588)

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.


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