An increasing number of international entrepreneurs are looking to Dubai as an investment destination for property. A frequently asked question is whether you can buy property in Dubai via your international holding company.
This may seem logical at first glance, but in practice, it works differently than in many other countries.
In this article, we explain step by step what is and isn’t possible. We discuss the different structures, the key tax considerations, and the practical advantages and disadvantages.
Always consult a financial advisor or accountant for your personal situation.
Buying Property in Dubai with Your International Holding Company: The Basics
In many countries, it is common to hold property on the balance sheet of a holding company. This can offer certain tax efficiencies and liability protection.
In Dubai, this works differently. You cannot, in principle, buy property directly through a foreign holding company. The reason for this is simple: the Dubai Land Department (DLD) only accepts natural persons or companies that are registered in the United Arab Emirates (UAE).
What does this mean in practice?
- Your foreign holding company cannot become the direct owner of property in Dubai.
- If you wish to purchase property through a company, you must establish a local entity, most commonly an LLC (Limited Liability Company).
- This local company can then proceed to purchase the property.
How Does Buying Property Through a Dubai LLC Work?
A commonly used route is to set up an LLC in Dubai. This is a legal structure similar to a private limited company, specifically intended for property and other investments.
Step-by-step guide:
- Establishing an LLC in Dubai
You can only do this through a local service provider or real estate agent. They will guide you through the company formation process. - Determining Shareholding
You can choose to register the LLC directly in your own name, or indirectly via your foreign holding company. This depends on your future plans:- Are you considering emigrating in the future? Then it is often wiser to keep the LLC privately held.
- Are you remaining in your home country and want maximum fiscal control? Then you might consider having your foreign holding company act as the shareholder of the LLC.
- Arranging Capital Transfer
You can transfer money from your foreign holding company to the LLC in two ways:- As a capital contribution.
- As a business loan, provided it is offered at market-compliant interest rates and terms.
- Buying Property Through the LLC
The LLC then purchases the property. Ownership is registered in the name of the LLC.
Important considerations:
- The LLC must pay annual costs for administration, licences, and accounting. Expect amounts between €6,000 and €10,000 per year.
- Financing through an LLC is difficult. Banks primarily look at the income of the LLC itself. A newly established LLC usually has no income yet, making mortgage options limited.
What Are the Tax Implications?
In Dubai:
- The first AED 375,000 of profit per year (approximately €93,000) is tax-free.
- Profit above this amount is taxed at a flat rate of 9%.
- There is no tax on rental income or capital gains if you own the property privately. However, through an LLC, you will pay corporate tax.
For International Investors:
- Your home country’s tax authority will likely view the LLC as a foreign entity.
- If your foreign holding company is a shareholder of the LLC, the value of the shares may be included on your holding company’s balance sheet.
- Dividends paid from the LLC to your foreign holding company may be eligible for certain tax exemptions or reliefs in your home country, provided the structure is set up correctly according to relevant laws.
- Be aware of strict administrative requirements. All transactions must be well-documented.
Property Transfer Tax during Restructuring:
If you wish to transfer a property you initially owned privately into an LLC later, you will usually have to pay property transfer tax again in Dubai. In some cases, this can be reduced to approximately 1% if you are the 100% owner of both the property and the LLC. However, this requires a custom solution.
Advantages and Disadvantages of This Structure
Advantages:
- Ability to use capital from your foreign holding company for Dubai property.
- Potential tax efficiency on distributions, depending on your home country’s legislation.
- Flexibility for future emigration or restructuring.
- Asset protection through a separate legal entity.
Disadvantages:
- High annual costs for maintaining the LLC.
- Limited financing options for a newly established LLC.
- Complex tax and legal structure.
- No direct inclusion of the property on your foreign holding company’s balance sheet without an intermediate step.
When is it a smart strategy?
- If you plan to buy multiple properties in Dubai, as the fixed costs per property decrease.
- If you are already considering emigrating to Dubai in the future.
- If you have capital in your foreign holding company that you wish to move to Dubai for investment purposes without making private withdrawals.
Alternative: Invest Privately and Convert Later
Many investors initially choose to buy property privately in Dubai. This is simpler, cheaper, and easier to finance. If you later decide to acquire multiple properties, you can still establish an LLC and transfer your property into it.
Please note: a transfer will incur property transfer costs again. Nevertheless, this can be more attractive in the long run than starting with an LLC immediately, especially for smaller investments.
Conclusion: Complex, But Sometimes Advantageous
Buying property in Dubai directly through a foreign holding company is not possible, but it can be done via a local LLC. This route is complex and costly, but it can be interesting for larger investments or if you are planning to emigrate to Dubai in the future.
Always ensure you have proper guidance. Mistakes in the structure can lead to double taxation or legal problems. For most international investors, buying privately is simpler, especially for a first property.
Unsure if an LLC is right for you? We can put you in touch with accredited real estate agents who specialise in Dubai property and can advise you on the best approach for your situation.