Case Study: Why a Foreign Company Was Not Able to Get a Title Deed

A foreign company (the “company”) acquired an off-plan property in Dubai before January 2011 when it was allowed for overseas companies to own real estate. The construction of the property was completed only in 2019 and the company needed to take possession of the property and obtain a Title Deed.

Issue Faced

Effective from January 2011, offshore companies were not anymore allowed to own properties in Dubai, except for JAFZA offshore companies registered in Jebel Ali Free Zone Authority.

The Company needed to apply for a Title Deed upon hand-over of the property. But, apparently, they were not able to do so because of the aforementioned rule prohibiting overseas companies to own a real estate in Dubai.

Analysis

On 13 March 2006, the Government of Dubai issued Law No. 7 of 2006 concerning Real Property Registration in the Emirate of Dubai (the “Law”) which governs property ownership by individuals and companies in the Emirate of Dubai.

Article 4 of Law states that foreign persons may, subject to the approval of the Ruler, be granted the following rights in certain areas:

• The right to acquire freehold ownership of real property without restrictions as to time; and
• The right to acquire a usufruct or leasehold right over real property for a period not exceeding 99 years.

The word “Person” is defined in the Law as a “natural or legal person”. Since companies including foreign companies are legal persons, from a legal point of view, there is no restrictions on foreign companies to own a real estate, pursuant to the above-mentioned Law.

However, the Law is further complemented by the various policies of the Dubai Land Department (DLD), some of which are published and some of them are not, and subject to change from time to time.

One of such policies of the DLD came into force on January 1st 2011, according to which foreign offshore companies (such as BVI, Cayman Island, Panama, etc.) were prohibited from owning real estate in Dubai. Later, foreign onshore companies were also included on the list of restricted companies. Such policies are non-retrospective meaning that if a foreign offshore or onshore company acquired a property and obtained a title deed prior to the above regulation, it can still remain owner of such property. The key point here is registering the ownership and obtaining the title deed prior to the new laws came into effect.

Apparently, such policies were enacted for several reasons. One of such reasons was that it was practically difficult to track the identity of shareholders of foreign companies and such companies could easily transfer the shares without notifying the DLD thus avoid paying the sale registration fee. The other reasons are to ensure better transparency and combat money laundering activities.

Going back to the issue of our client, our client is a foreign onshore company who purchased the off-plan property in free-hold area when foreign companies were still allowed to do so. The company was not bothered until the property handover that happened only in 2019, when the parties applied for the Title Deed. Request for the Title Deed was not approved by the DLD due to the new rules in force.

Our client had to take possession of the property in any case and approached us seeking a solution.

Solution

After careful review of rules and regulations in place and consulting with the Dubai Land Department, we have proposed two possible solutions to the client:

• Option A.  Seeking an approval from DLD to transfer the property as a gift from the company to its individual shareholders in the same proportions as their shareholding in the company.
• Option B. Registering a new offshore company in Jebel Ali Free Zone in Dubai (JAFZA offshore company), wholly owned by the company or by the company’s shareholders with the same share proportions as in the company. Then, the company can seek an approval from DLD to transfer the unit as a gift to the JAFZA offshore company.

The client preferred to go for the Option 1 as this was more cost-effective comparing to the Option 2. We assisted the client with the process of securing DLD’s approval for the gift transfer and eventually were able to transfer the unit as a gift to individual shareholders’ names.

During the process, we had to prove the ultimate shareholders of the company by submitting relevant corporate documents, which were legalized and attested by relevant foreign government authorities and UAE Embassy in the country of origin and Ministry of Foreign Affairs in UAE.

After completion of the gift transfer, the DLD issued a Title Deed under the names of the individual shareholders. The issue was resolved.

Conclusion

In fact, such issues arise quite often as there are many foreign companies that purchased off-plan properties when they were still allowed, and the properties were handed over only after the new regulations came into force that prohibit foreign companies from owning real estate in Dubai. In such scenarios, one of the possible solutions is to gift-transfer the property to individual names of ultimate shareholders or setup a subsidiary company in UAE, e.g. JAFZA offshore company or DIFC company, and transfer the real estate into such company’s name.

Disclaimer: The content on this page is for general information purposes only and does not constitute as legal advice nor should it be used as a basis for any specific action or decision. Nothing on this page is to be considered as creating a lawyer-client relationship or as rendering of legal advice or legal services for any specific matter. Users of this website are advised to seek specific legal advice from their lawyer or a legal counsel regarding any specific legal issues.