Episode 17 – Foundations & Real Estate [Part 2]
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In our seventeenth episode, Kath Zagatti, legal director at M/HQ joins Yann Mrazek, Managing Partner at M/HQ covering a second batch of frequently asked questions on the use of foundations for Real Estate structuring.
Key Takeaways
[Yann Mrazek]
Real estate is always a hot topic when talking investment holding. This Podcast is meant to answer another round of FAQ on the topic
with a focus on transfer of Dubai properties to Foundations or to entities ultimately owned by a Foundation.
On the menu: procedure, transfers fees, different Registrars of properties in Dubai, as well as financing & refinancing.
[YM] How many Registrar of Properties are there in Dubai?
[Kath Zagatti]
Dubai counts with two different Registrars of properties: the Dubai Land Department (DLD), and the DIFC Registrar of Real Property.
The DLD is responsible for registering all properties in the Emirate of Dubai, except for properties located within the DIFC, which fall under the jurisdiction of the DIFC Registrar.
[YM] and then, there are different types of property rights, correct?
[KZ]
Yes, one can have:
- Freehold: Full ownership
- Leasehold or Usufruct: Right to use for up to 99 years without changing
the original conditions - Musataha: Right to own, build and use a property for up to 50 years
- Granted Land: Lands granted by the Sheikh, usually to a UAE National,
for development (residential, commercial or industrial purposes)This property right, however, is not a freehold and is subject to certain restrictions, for instance the property cannot be sold without a special approval from the Sheikh or unless the UAE National pays a fee to convert this granted land into a freehold property
[YM] How do both Registrars work?
[KZ]
The procedures and fees involved in a property transfer with the DLD and the DIFC Registrar are slightly different
| DLD | DIFC | |
| Standard Transfer Fees | 4% of the market value of the property | 5% of the market value of the property |
| Gifting Fees / Internal Transfer | 0.125% | No fees |
| Gifting Fees / Internal Transfer – Application |
Beneficial Owner(s) + Immediate family members |
Same Beneficial Owner(s) |
| Procedure | Buyers / Sellers / Reps in person |
Online [DIFC Portal] |
The DLD applies a standard transfer fee of 4% of the market value of the property; whereas the DIFC Registrar applies a standard transfer fee of 5%.
[YM] A DIFC premium for you!
That’s right! That said, there are some exemptions.
The DLD has the concept of “gifting fees” which means 0.125% of the market value of the property (as opposed to 4%). The gifting fee applies to transfer of properties involving immediate family members (i.e. parents, children and spouses) and transfers or restructuring involving the same Beneficial Owner(s). The DIFC Registrar, on the other hand, considers a transfer or restructuring “internal” if it involves the same Beneficial Owners. In this case, no transfer fee is applied by the DIFC Registrar but only administrative charges.
Also, differently from the DLD, the DIFC Registrar does not deem “internal transfer” a transfer of property between immediate family members. In this case, 5% transfer fees will be applicable.
In terms of procedure, a property transfer in DIFC is completed remotely, through the DIFC online Portal, whereas the DLD requires the presence of the buyers and seller (or their representative) in front of one of the Registration Trustee Offices.
[KZ]
Yes! Both Registrars accept Foundations as direct or indirect owner of properties in Dubai.
[YM] So, give me some illustrative examples of how this transfer works
[KZ]
Example 1: property held in name being transferred to a DIFC Foundation where the owner of the property is the Founder and Initial Beneficiary – 0.125% gifting fees apply for DLD and zero fees for DIFC
Example 2: property held by a JAFZA entity (itself held by an individual) being transferred to a PresCo owned by a DIFC Foundation where the same individual is the Founder and Initial Beneficiary – 0.125% gifting fees apply for DLD and zero fees for DIFC
[KZ]
Example 3: shares in JAFZA entity being transferred to a DIFC Foundation, where the previous owner of the JAFZA is the Founder and Initial Beneficiary of the Foundation – 0.125% gifting fees apply for DLD and zero fees for DIFC
[YM] What if, in these examples you showed us, the Founder and Initial Beneficiary are different from the person who owns the property?
[KZ]
Example 4: property held in name being transferred to a DIFC Foundation where the immediate family of the owner of the property is the Founder and Initial Beneficiary – 0.125% gifting fees apply for DLD and 5% fees for DIFC
[KZ]
Example 5: shares in JAFZA entity being transferred to a DIFC Foundation, where another individual (not related to the owner of the JAFZA entity) is the Founder and Initial Beneficiary of the Foundation – 4% fees for DLD and 5% fees for DIFC
[YM] What about mortgaged properties: possible to be transferred to a Foundation?
[KZ]
Yes. Mortgaged properties (or properties to be mortgaged) can also be transferred to a Foundation, as long as the bank accepts (re-)mortgaging the property in favour of the Foundation. This is becoming very common lately due to the increase in the number of private and retail banks being willing to accept mortgaging properties in favour of Foundations.
[YM] Re-mortgage cost? how long?
[KZ]
The fees for mortgaging a property in Dubai are 0.25% of the market value of the property, added to administrative fees (around AED 6,000) to de-register the previous mortgage (if this is the case) and register the new one with the DLD.