UAE in general and Dubai in particular, has become a place more and more people consider as a potential place to relocate.
Over the past years, UAE has increasingly emerged as a popular jurisdiction for relocation of High Net Worth Individuals (HNWIs), and a strong alternative to traditional jurisdictions including UK, Switzerland and Monaco.
With no taxes on individuals, straightforward administrative procedures and low processing costs, political stability, excellent accessibility, good health care, sound education system and sunny weather throughout the year, the UAE alternative is very attractive. Further, its position at the heart of the Middle East, its airline hub - one of the biggest and best - and its excellent infrastructure render UAE a very attractive option.
UAE’s position has aslo been reinforced by the “Arab Spring”, the ongoing tax back lash in other relocation hubs,for example, amended UK tax regimes pertaining to non-doms, signs of erosion of the lump-sum tax system in Switzerland and the decline of the PR (Permanent Resident) regime in Singapore as well as plans from various countries to “tighten the screw” on Europe’s tax heavens.
We shall be pleased to be of service to you.
RESIDENCE PERMITS
Individuals other than UAE and GCC citizens must have a residence visa if they want to live in the UAE.
Obtaining a residence permit is the primary condition for being considered as resident in the UAE, hence a taxable person.
As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction. For many expatriates, the company that employs them will act as their sponsor and secure them residence visa.
For those who do not come on an employment contract, there are two other ways for obtaining UAE residency:
• investment in real estate (property residence visa)
• set up of corporate structure to act as sponsor
Real Estate Investor / Property Residence Visa
UAE government in June 2011 introduced a new system extending the validity of the visa granted to real estate investors to up to 3 years.
The following rules and conditions govern the issuance of a real estate investor visa:
• the property is built and ready for accommodation
• the applicant proves ownership (title deed issued by the Land Registrar)
• the property is worth minimum AED 1 million (equivalent to US$300.000) with no mortgage
• the applicant’s income is higher than AED 10.000 (US$3.000) monthly
Some other features:
1 only one sponsorship can be obtained for each property, irrespective of size. This does not restrict the main sponsor to act as sponsor for family members
2 when the property is sold, the main sponsorship as well as the sub-sponsorship connected to the property are discontinued
3 since the property must be held in personae, no indirect holding through a company is allowed, leaving no room for inheritance planning
In order to obtain a residence permit, a new real estate investor must follow the following steps:
• approach the Dubai Land Department with the title deed along with passport copy and passport size photo
•
after
payment
of
the
fee,
the
Dubai
Land
Department
will
issue an approval certificate
•
the
owner
has
to
approach
the
Department
of
Economic
Development,
which
will
then
issue
a
trade
license
•
when
the
trade
license
is
issued,
the
property
owner
can
approach
the
Immigration
section
in
the
Land
Department,
which will issue a 2 year investor visa
The total cost of a 2 year UAE real estate investor residence visa is approximately
AED
9,000
(US$2,450),
corresponding
to:
•
trade
licence
5,000 AED
•
residence
visa
7,500 AED
and the renewal cost is similar.
The
processing
of
the
residence
permit
takes
between
3
to
4
weeks.
In
Dubai,
Article
4
of
Law
No.
7
permits
individuals
of
non-GCC
countries
(“Foreign
Investors”)
and
companies
owned
in
full
or
in
part
by
foreign
investors
to
acquire,
in
certain
areas
of
Dubai:
•
absolute
ownership
of
land
without
restrictions
as
to
time,
and
•
usufruct
or
leasehold
of
land
for
a
period
not
exceeding
99-years
In the past, any offshore company, wherever registered, was
authorized
to
hold
properties
in
Dubai.
However,
as
of
January
2011,
the
Dubai
Land
Department
does
not
allow
the
registration
of
acquisition
of
properties
in
Dubai
by
foreign
offshore
(BVI,
Cayman
Islands,
Bahamas
etc)
and
local
(RAKIA/ RAK)
companies.
This rule has only one exception: the companies registered in UAE’s
JAFZA
(Jebel
Ali
Free
Zone
Authority).
There
is
a
4%
fee
levied
by
the
Dubai
Land
Department
for
the registration of title to real estate. That fee, under current legislation,
ought
to
be
split
equally
between
the
buyer
and
the
seller.
The fee applies to purchases of real estate by foreign Investors and locals alike.
In case of transfer of ownership from an individual name to a JAFZA
company
(whose
shareholder
is
the
same
individual),
it
seems
to
be
possible
to
reduce
the
cost
of
transfer
to
0.125%
from
the
standard
2%
charge.
Developers
of
real
estate
may
also
operate
their
own
system
of
fees payable in respect of purchases within their developments. There is no one system of fees operated by all developers.
Corporate structure
The other way to obtain residency is through a corporate structure.
As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction. For foreigners, setting up a company is a practical way of obtaining sponsorship.
As far as the company is concerned, it must have physical presence in the UAE. In that regard, the most interesting and cost effective options are proposed by free zones situated in the northern
Emirates.
Usually,
these
options
consist
of
“flexi
desks”
or
“flexi
offices”.
Subject to the sponsoring company being properly maintained ie
the
company’s
license
must
be
renewed
on
a
yearly
basis,
the
residence permit is valid for a period of three years. Then, the resident ie the person who received a residence permit via his company, can sponsor the members of his family, for a similar period of 3 years.
The
cost
of
a
3
year
UAE
residence
visa
is
around
AED
7.500
(US$2.000)
(one
time
fee).
The
assessed
costs
for
the
set
up
of
a
Free
Zone
company
(say
a
RAK
FTZ)
are
as
follows,
including
the
processing
of
one
residence permit:
•
Year
1:
US$10,000
The maintenance costs from the second year onward are as follows:
•
Year
2
onwards:
US$7,500
The setting up process for a free zone company usually takes no more
than
7
to
10
working
days.
The processing of a residence permit through a free zone company is a bit longer since it might take between 18 and 20 working days.
Conclusion
Shall one acquire a property and go for the real estate investor (REI) permit or set up a corporate structure?
• the real estate permit has the advantage of being linked to the acquisition of a property: this is the easiest way to take residency in the UAE since by acquiring a property, one can apply and get a residence permit.
Furthermore, the overall cost of a real estate permit is cheaper than the other possibility since the latter requires the establishment of a company.
This program has been considerably modified since its introduction in the mid-2000, and may be changed in the future. As corporate ownership is not allowed, in case of demise of the expatriate, the transfer of the property as well as the designation of the heirs and their respective portion may be done according to Sharia’h law. Proper advice must be sought.
• the residence permit through a corporate structure is a well established process, predictable and certain. The cost of the residence permit is cheaper than a REI Permit and its duration longer (3 years against 2 years for new real estate investors). However, this option is more costly than the other one since it requires the set up and maintenance of a free zone company.
Considering the above, the residence permit via the acquisition of property in Dubai is in our opinion a good option and recommended for the purpose of tax relocation in the UAE. It might suit families but not, for example, relatives willing to share the same residence.
INHERITANCE ISSUES
Matters
of
inheritance
in
the
UAE
are
governed
by
two
laws:
•
the
Federal
Law
No.
5
of
1985
regarding
the
law
of
Civil
Transactions
in
the
UAE
(the
“Civil
Code”)
(see
Annex
6),
and
•
the
Federal
Law
No.
28
of
2005
regarding
UAE
Personal
Affairs
Law
(the
“Personal
Affairs
Law)
Demise while living in UAE – Importance of Religion
When someone residing in the UAE passes away, his estate will be opened in the UAE.
As
a
general
rule,
inheritance
issues
for
Muslim
are
dealt
with
in
accordance
with
Sharia’h
(a
system
of
Islamic
law
based
on
the
Quran),
whereas
for
foreigners,
the
law
of
the
deceased’s
home
country applies.
Demise of a Muslim
In
case
of
death
of
a
Muslim,
his
inheritance
and
will,
if
any,
will
be respectively distributed and enforced in accordance with Sharia’h
law.
According
to
Sharia’h
law,
only
a
Muslim
can
inherit
from
another
Muslim.
Therefore,
in
case
a
Muslim
is
married
to
a
non-Muslim,
it
is
crucial
to
have
a
will
in
place
in
order
for
the
non-Muslim
spouse
to
be
entitled
to
up
to
1/3
of
the
estate,
which
is
the
freely
disposable
portion
according
to
Sharia’h
law.
In
the
absence
of
a
will,
the
non-Muslim
partner
will
not
receive
any
portion
of
the
estate
since
he/she
will
not
be
considered an heir.
Demise of a non- Muslim
In
case
of
death
of
a
non
Muslim,
the
court
should
apply
the
law
of
the
deceased’s
home
country.
In
practice,
this
rule
is
sometimes
difficult
to
follow.
Therefore, it seems that the Courts will have the discretion as to whether the laws of the country to which the deceased belonged
are
adopted
or
if
the
Sharia’h
law
is
applied.
In either case, it is essential that a valid will is available to the Courts because should the Court decide not to use the law of the country to which the deceased belonged but instead apply UAE Sharia’h law, then 1/3 of the estate will most probably be liquidated and distributed in accordance with the deceased will.
Scope
The Court of First Instance has jurisdiction to handle inheritance matters.
In
theory,
the
Court’s
jurisdiction
covers
all
assets
of
the
deceased, regardless of their location and nature. In other words, it will cover the movable as well as the immovable assets located both in the UAE and abroad.
Practically
speaking,
however,
Courts
tend
to
restrict
the
probate
procedure to assets located in the UAE.
UAE located properties
As
stated
earlier,
the
estates
of
Muslims
should
be
governed
by
Sharia’h
law,
and
of
Non-Muslims
by
the
law
of
their
home
country.
It is not clear, however, whether this rule applies to real estate located in the UAE since:
1.
the
Civil
Code
states
a)
that
the
law
of
the
home
country
applies
to
matters
of
inheritance,
and
b)
that
where
a
will
made by a foreigner involves the disposal of real estate in the UAE, then UAE law applies
2.
the
Personal
Affairs
Law,
even
if
it
confirms
the
fact
that
the
laws of the home country apply to matters of inheritance for foreigners, makes no specific reference to real estate located in the UAE
Ultimately, it is up to the UAE Courts to decide which laws to apply on a case by case basis. If the Court decides to apply local law,
or
if
the
law
of
the
deceased’s
home
country
states
that
local law applies to matters of inheritance, then the provisions of Sharia’h
apply.
One way to avoid the application of UAE law to the disposal of property in UAE is to incorporate a free zone company as a purchase vehicle.
If
the
property
is
owned
in
the
company’s
name,
ownership
of
the property can be transferred via shares in the company.
Therefore, if a shareholder dies, it is only shares that are disposed of, and not the property.
This avoids the specific provision in the Civil Code that states matters of real estate must be dealt with in accordance with the UAE law, and means that the general provision allowing the laws of the home country to apply to general matters of inheritance are followed.
DUBAI: WHY RELOCATE
The
UAE
and
more
especially
Dubai,
is
a
favourite
relocation
country,
mainly
due
to:
• exemption from income tax for individuals
• exemption from corporate tax for companies not active in finance and oil
• no quotas on number of issued residence permits
• no requirement to obtain a “fiscal quitus” from a foreign country
• no minimum requirement regarding time spent annually other than visiting the UAE minimum once every six months
• no requirement to effectively reside in the UAE
• presence of internationally recognized financial, legal and tax services providers
• primary hub and platform to access international business
• political stability and security
• superior accommodation standards and high standard of living
• good health care system