The United Arab Emirates (UAE) Civil Code (Law No (5) of 1985, as amended) and the UAE Constitution provide regulation of property and property transactions at a federal level. Laws relating to real estate ownership are enacted by each of the seven Emirates within the UAE.

Also within the Emirates are “free zones”, which are authorised to issue their own laws and regulations. For example, the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) have real estate laws that differ to the remainder of Abu Dhabi and Dubai.

This guide focuses on Abu Dhabi and Dubai, which are the main commercial hubs and attract the most foreign investment into real estate in the UAE.

The Dubai real estate market continues to attract record foreign direct investment (FDI) inflows, with the UAE ranking second globally in the number of greenfield FDI projects in 2023. The authors have noticed a trend of regional developers partnering with international developers on large-scale development projects as an alternative means of sourcing international investment.

A particular growth area is branded residential projects, with Dubai having the largest number of completed and of pipeline schemes in the EMEA region. A noteworthy trend is the increase in standalone branded residential projects (without a hotel component).

The UAE has been resilient to rising inflation and increases in interest rates. The regulatory framework for real estate investment and development is more sophisticated than in 2008 during the nascent years of the UAE market, when it opened to foreign ownership. This has helped the market to respond to the challenges and opportunities brought about by economic and geopolitical events.

The UAE is also taking positive steps towards regulating and embracing digital finance. Tokenisation, underpinned by blockchain technology, is attracting interest among major developers, given its potential for increased capital access. The UAE Security and Commodities Authority and its ADGM and DIFC counterparts are each focused on putting regulatory environments in place to encourage crypto-fundraising and develop markets for trading within the UAE. 

There is no formal requirement in the UAE to make public any proposals for reform.

In the UAE, five main types of property interests can be held:

• absolute ownership (freehold);
• usufruct interest;
• musataha interest;
• leasehold interest; and
• granted land.

Absolute Ownership (Freehold)

In Abu Dhabi, the following may have absolute ownership of real estate:

• UAE nationals and UAE-incorporated companies wholly owned by them;
• UAE-listed public joint stock companies in which non-UAE national shareholding does not exceed 49%; and
• any person or company specifically authorised to hold real estate by decision of the Crown Prince or Executive Council. 

All other nationalities are only permitted to own real estate in areas for foreign ownership –  ie, the designated “investment areas”.

In Dubai, nationals of the GCC, UAE-incorporated companies wholly owned by them and UAE-listed and public joint stock companies may have absolute ownership of real estate. All other nationalities are only permitted to own real estate in areas designated for foreign ownership.

Usufruct and Musataha Interests

A usufruct interest is a right in rem in favour of the grantee to use and exploit the property of another, provided the property remains in its original condition. A musataha interest is a type of usufruct that confers upon the grantee the right to build upon the land of another.

In Abu Dhabi, both usufruct and musataha rights can be held by UAE nationals and UAE-incorporated companies wholly owned by them (without restriction) and by non-UAE nationals in designated investment areas only.

In Dubai, both usufructs and musatahas can be held by GCC nationals and UAE-incorporated companies wholly owned by them, but by non-GCC nationals in designated areas only.

In all cases, usufructs are restricted to a maximum term of 99 years and musatahas to a maximum term of 50 years (renewable once in Abu Dhabi).

Leasehold Interests

Generally, leasehold interests in the UAE are treated as personal rights between two parties and not as real rights. An exception to this is leases of 25 years or more in Abu Dhabi and leases of ten years or more in Dubai, which are each considered as (and can be registered as) real rights.

Granted Land

Land may also be “granted” by the rulers of each Emirate to Emirati citizens or companies owned by Emiratis. The grant of such land can be revoked by the ruler at any time, and is subject to obligations to develop and to restrictions on its use and disposal.

The following federal laws are relevant:

• the Civil Code; and
• Federal Law No (18) of 1993 on commercial transactions, as amended (the “UAE Commercial Code”).

Each Emirate has its own laws and regulations governing the transfer of title.

In Abu Dhabi, the relevant laws relating to the transfer of title include:

• Law No (3) of 2005 (as amended) concerning the regulation of property registration in the Emirate of Abu Dhabi;
• Abu Dhabi Administrative Decision 51/1/2008 on the issuance of the Implementing Regulation of Abu Dhabi Law No 3 of 2005 concerning the regulation of real estate registration in the Emirate of Abu Dhabi;
• Law No (19) of 2005 re-organising real property in Abu Dhabi (as amended by Law No (10) of 2013);
• Law No (3) of 2015 concerning the regulation of the real estate sector in the Emirate of Abu Dhabi;
• Law No (13) of 2019) concerning the amendment of some provisions of Abu Dhabi Law No (19) of 2005 concerning real estate ownership; and
• various Abu Dhabi Executive Council Decisions on designation of investment zones.

In Dubai, the relevant laws relating to the transfer of title include:

• Dubai Law No (7) of 2013 concerning the Land Department;
• Dubai Executive Council Decision No (30) of 2013 approving fees of the Land Department;
• Dubai Decree No (4) of 2010 regulating the granting of title to allotted industrial and commercial land in the Emirate of Dubai;
• Dubai Law No (13) of 2008 regulating the Interim Property Register in the Emirate of Dubai, as amended by Dubai Law No (9) of 2009, Law No (19) of 2017 and Law No (19) of 2020;
• Dubai Law No (6) of 2019 regulating the joint ownership of real estate in the Emirate of Dubai; and
• Dubai Law No (7) of 2006 concerning real property registration in the Emirate of Dubai, as amended by Dubai Law No (7) of 2019.

The laws apply to all asset classes.

Registration of Transfers

All transfers of land in Abu Dhabi and Dubai must be registered.

In Dubai, this may be done remotely through the Dubai Land Department (DLD) portal, or it may be done in person at one of the trustee offices of the DLD; while in Abu Dhabi it is done at the Abu Dhabi Department of Municipalities and Transport (DMT).

The DIFC and ADGM have their own system of land registration and maintain their own registers. Certain other free zones maintain their own register of real estate interests, but this does not negate the requirement to register land transactions at the onshore land register.

Off-Plan Sales Contracts

In Abu Dhabi and Dubai, contracts for the sale of real estate that is being developed (ie, off-plan) must be registered on an interim register. Interim registration does not, however, create any legal ownership. Upon completion of the unit, the interim registration is cancelled, and full registration occurs.

Title Insurance

It is not common for title insurance to be obtained.

In the UAE, the due diligence process can often be difficult due to the lack of information made publicly available. The land registers are not publicly searchable.

Most information relating to the ownership or particulars of a property (ie, title certificates, affection plans, zoning information, etc) can only be obtained from the relevant governmental departments upon application from (or with authorisation of) the owner of the property. Some information relating to utility arrangements, community charges, leases or other contracts affecting the land can only be obtained from the owner of the land.

As a result, any due diligence carried out will typically be reliant upon materials provided by the seller’s lawyer (which includes title certificates and searches) and the seller’s response to follow-up enquiries made by the buyer.

Representations and warranties in a sale and purchase agreement are subject to agreement by the parties, and vary from contract to contract.

Abu Dhabi and Dubai laws remain largely silent on the representations and warranties that are implied in the sale of property, except for the sale of off-plan units. A developer selling a unit off-plan is required to repair any structural defects in a unit for ten years from the date of issuance of the completion certificate, and is liable for latent defects for one year from the issuance date of the completion certificate.

An investor should pay particular attention to the planning, zoning, construction, environmental, and health and safety laws that may apply to the property, and should obtain assurances that all requisite approvals were obtained prior to the building having been constructed.

Non-UAE nationals should carefully consider whether the property is in an area in which the buyer is legally permitted to hold the interest that they plan to buy.

Environmental laws in the UAE are comprised of federal- and Emirate-level laws. The federal laws primarily aim to control all forms of major pollution, and will apply to the principal polluter (developer, industrial organisation, etc). There is a possibility that environmental liabilities can pass with land, particularly if the breach of environmental laws continues after the purchase by the buyer.

The DMT and the Dubai Municipality (DM) are responsible for the zoning of land in their respective Emirates. The DMT and the DM each issue affection plans in respect of plots of land, which state the zoning for such land and details regarding the size of the building permitted to be built on such land.

Expropriation of land is possible in both Abu Dhabi and Dubai. The UAE Constitution and Civil Code, however, restrict the right of a public authority to expropriate land, unless such expropriation is for a public benefit and compensation will be paid to the party being disadvantaged by such expropriation.

There is no formal statutory process, although typically for large-scale expropriations a committee will be formed to co-ordinate dealings with affected parties and to determine compensation.

Asset Deals

In Abu Dhabi, the seller and buyer are required to pay registration fees of between 1% and 4% of the purchase price. It is common for the buyer to pay the transfer fee.

In Dubai, the seller and buyer are required to pay registration fees of 4% of the purchase price, which is split equally between the parties unless otherwise agreed. In practice, it is common for the buyer to pay the full 4% transfer fee.

Mortgage

Where a mortgage is taken over the property, the mortgage must also be registered. The current applicable mortgage registration fees are (for Abu Dhabi) 0.1% of the mortgaged amount and (for Dubai) 0.25% of the mortgaged amount (up to a maximum of AED1.5 million).

Share Deals

In Dubai, the DLD requires notification of any changes in shareholding of real estate-owning companies, and a proportionate transfer fee will be applied. Failure to inform the DLD can result in a fine. If the seller is a taxpayer for corporate income tax (CIT) purposes, any gain derived from the sale or divestment of shares will in principle be subject to tax at a rate of 9%, unless the conditions for the participation exemption regime are met, or unless the seller is eligible for the 0% tax rate under the free zone tax regime. The transfer of shares is typically exempt from VAT.

VAT

VAT is applied to the sale of real estate assets (discussed in more detail below).

CIT

Both buyers and sellers should evaluate the tax implications of transactions involving real estate from a CIT perspective. Generally, any income derived from the sale or divestment of real estate assets by juridical persons will be subject to tax at the standard tax rate of 9%. However, under certain circumstances, income from the sale of commercial property could benefit from a 0% CIT rate under the free zone tax regime (subject to meeting the relevant conditions). The UAE CIT regime offers various forms of relief for intra-group transfers or business restructurings involving real estate, whereby assets can be transferred at book value and no gain is realised by the seller.

Individuals who conduct a business or business activity in the UAE will also be subject to CIT if their turnover exceeds AED1 million within a calendar year. However, income that individuals earn from real estate investments, including profits from selling, leasing, subleasing or renting out land or property, is exempt from CIT. This exemption applies provided these activities do not require a licence or are not conducted through a licence. Additionally, this type of real estate income does not count towards the AED1 million threshold that determines CIT liability for individuals.

There are legal restrictions on foreign investors acquiring real estate, as set out in this guide. 

It is common for the acquisition (or development) of real estate in the UAE to be financed by obtaining a loan (often with a mortgage as security for repayment). A loan can be provided either on a bilateral basis (single lender providing the entire facility) or on a syndicated or club basis (multiple lenders, each providing parts of the overall facility). Only banks licensed by the UAE Central Bank are eligible to be mortgagees of record for real estate in the UAE.

Another popular financing structure in the UAE is through Islamic financing, which has developed in accordance with Sharia principles. One of the key principles is that the payment and receipt of interest (riba) is prohibited and any obligation to pay interest is considered to be void. However, Islamic principles do not prohibit a financier in an Islamic finance transaction from making a profit, rental or other return on its asset or investment.

Existing real estate may be financed through sale and leaseback arrangements (ijara), where the borrower sells the property to the Islamic financier and subsequently leases it back in exchange for paying rentals. However, this kind of arrangement may attract registration and other costs, which can make a leasing or ijara structure economically unviable.

Commodity murabaha (tawaruq) financing structures rely on underlying commodities trades in order to create debt-based obligations (like a conventional loan). This structure does not involve additional transfers and can also be structured on a bilateral or syndicated basis in the same way as for a conventional loan. A commodity murabaha structure can also be secured using a mortgage over the underlying real estate.

Other Financing Structures

There is a general trend towards the establishment of real estate funds/real estate investment trusts (REITs) whereby stakeholders inject capital into a fund, where the principal objective is to invest in strategic real estate in the UAE (and/or the wider GCC area) and to grow a real estate portfolio for the fund’s investors.

Another alternative is to access the debt capital markets, through either bonds or sukuk (also known as Islamic bonds).

Security over real estate and real estate interests (such as usufruct or musataha) can be taken by way of a mortgage that is registered at the relevant land department. Some of the Emirates (and free zones) have specific laws dealing with mortgages, but, in the absence of legislation, mortgages are generally governed by the Civil Code. Generally speaking, mortgages over real estate may only be granted in favour of a bank that is licensed by the UAE Central Bank.

Movable Property

In 2020 the UAE issued a new Federal Law No 4 of 2020 (the “Movable Assets Mortgage Law”) as a regulatory regime which provides that a wide variety of assets (such as accounts, trade payables or receivables, equipment including future property) can be secured without demonstrating possession – provided that the security is registered on the applicable security register.

The Movable Assets Mortgage Law provides a greater level of certainty in the context of real estate financing transactions, and also enables security to be taken over movable property that is similar in effect to a debenture or “floating charge”. In terms of registration, the current applicable security register where such security over movable property is to be registered is the Emirates Integrated Collateral Registry Company.

Security Over Shares

Where a special purpose company (SPC) has been established for the purposes of a real estate investment or development, it may be possible for the financiers to take security over the shares of that SPC. As a general rule, it is possible to take security over the shares in a company, including onshore LLCs. There are restrictions on which entities can own real estate, and the process for share pledges can differ depending on where a company is registered. Generally, if the SPC is incorporated in onshore UAE or in certain free zones, the share pledge would be subject to notarisation and can only be granted to locally licensed banks. For cross-border financing, a foreign lender would be required to appoint a locally licensed bank that will act as a local security agent.

Guarantees

Guarantees are common in the UAE, including corporate and/or personal guarantees given in relation to a real estate financing. These kinds of guarantees are specifically codified in the Civil Code and the UAE Commercial Code.

The UAE Central Bank’s rules and regulations provide that a party wishing to hold security over real estate must be a bank, company or financial institution that is licensed by the UAE Central Bank to provide property finance. Foreign (unlicensed) lenders will often appoint a locally licensed security agent to act on their behalf in relation to security over real estate assets.

The only restrictions on repayments being made to a foreign lender under a security document or loan agreement include:

• restrictions or measures designed to counteract money laundering and/or the funding of terrorist activities; and
• transactions involving certain sanctioned countries or blacklisted entities.

The UAE Central Bank may impose additional restrictions.

There are no specific taxes that would apply in the UAE; however, the following fees are payable in relation to granting and enforcing security over real estate:

• a bank property valuation fee;
• notarial fees;
• a mortgage registration fee;
• notarial fees to give notice of default (Dubai);
• a publication fee and a public auction fee if a secured asset is sold by public auction; and
• court fees for enforcement of a security interest.

It is not possible for a joint stock company (JSC) target, or any of its subsidiaries, to provide any financial aid (such as loans, security and guarantees) that will assist a buyer in acquiring its shares. However, limited liability companies are exempt from such restrictions under a Ministerial Resolution of 2016. In any event, as a matter of good practice, all companies would be advised to demonstrate that there is a corporate benefit to the company granting any security.

A lender is entitled to satisfy the debt from the mortgaged property when the debt falls due, provided that the mortgage has been properly registered.

Upon a default in payment by the borrower, and provided that the mortgage has been registered, the lender must give 30 days’ notice to the debtor by registered mail (Abu Dhabi) or through a notary public (Dubai) before commencing execution proceedings. If the payment is not made within such 30-day period, the magistrate of summary justice (in Abu Dhabi) or the execution judge (Dubai) shall, at the request of the lender, order an attachment against the mortgaged property, and shall, at the request of the lender, issue a decision enabling the mortgaged property at public auction.

The court may postpone the sale of the property by public auction for a period of up to 60 days if it is of the opinion that the mortgagor may be able to settle the debt within this period, or if the sale of the property would cause “serious damage” (Abu Dhabi) or “substantial damage” (Dubai) to the mortgagor.

If the real estate is insufficient to satisfy the debt, the mortgagee may have recourse against the mortgagor’s other assets as an ordinary creditor. The mortgagee must follow the statutory procedure, and provisions in the mortgage document attempting to circumvent this procedure would be held to be void.

If a security interest is required to be registered, the date of registration determines its ranking. If it is not registrable, it will rank in order of the date of creation (noting, however, that the laws relating to priority are largely untested in the UAE). If two or more applications to register a mortgage against the same property are made at the same time, the mortgages are registered together and rank equally in the distribution of auction proceeds.

A lender may assign the ranking of its mortgage to another creditor that has a security interest in the same property.

Environmental laws in the UAE are not particularly detailed, but the relevant authorities are likely to pursue the party responsible for causing the environmental harm, which may or may not be the mortgagor. If there are any remedial costs associated with rectifying the damage, the law provides that the lender may “take whatever legal action is necessary to protect its rights and recover the costs from the mortgagor”. In addition, the mortgage will typically contain indemnities in favour of the lender in the case of pollution or other acts caused by the mortgagor that are harmful to the environment.

There remains a degree of uncertainty as to the correct application of Federal Decree Law No 9 of 2016, as amended (the “UAE Bankruptcy Law”). A declaration of insolvency will not result in the dissolution of contracts that are binding on both parties unless the services are “personal” in nature.

If a borrower declares insolvency, the lender’s security interests will not be extinguished to the extent that such security is not challengeable on an antecedent transaction. The obligations of a UAE company are subject to limitations arising from bankruptcy, liquidation, composition, and all other laws and general principles affecting the rights of creditors generally.

The UAE Bankruptcy Law provides for a short-term cramdown process for debtors entering bankruptcy during (and as a result of) an emergency financial crisis, and the amendment also suspends creditor applications during an emergency financial crisis. An “emergency financial crisis” requires a Cabinet Decision to declare it.

No federal taxes are directly applicable.

Abu Dhabi

Planning powers are vested in the DMT. Major developments are subject to a review process, in line with the longer-term strategy for Abu Dhabi’s urban development. The review process includes four key steps, as follows.

Step 1: the information meeting

This is held by the DMT with the owner/developer on the acquisition of a development site, to enable the DMT to provide the applicant with relevant information (eg, plans, policies, processes, etc).

Step 2: preliminary development options

The applicant is required to prepare preliminary development options. General land use and site layout must be provided. The DMT and the applicant will review the options and then select an option to develop through to the concept-plan stage.

Step 3: the concept plan

The applicant is required to submit a concept plan for evaluation and approval by the DMT and other government authorities. The concept plan will be reviewed for compliance with the Emirate’s urban and development plans and policies.

Step 4: the detailed plan

For small and medium-sized projects, applicants can then prepare and submit detailed site and building plans for review. This step also confirms that any conditions of approval have been met. The planning review process ends once all these steps have been satisfactorily carried out, and the applicant is then ready to apply for municipal building permits.

For large projects, this stage of the process is aimed at helping applicants translate concept masterplans into detailed regulations and guidelines. Additional developer and DMT/municipal review are required for large projects, to ensure compliance with DMT-approved regulations and guidelines before the applicant can apply for building permits.

Dubai

Dubai Law No (16) of 2023 on urban planning (the “Planning Law”) establishes a system of primary and subsidiary statutory plans. The Dubai Urban Plan 2040 is the basis of the primary structure plan, which sets out planning policy at a strategic level. The subsidiary framework plans are to be prepared by DM or other relevant authorities to implement the principles of the structure plan.

Under the Planning Law, development work in the Emirate may only be carried out following the granting of a master plan permit, planning permit or general planning permit. It is an offence under the Planning Law for any “development work” to be undertaken in the absence of a permit. 

The affection plan system remains, where an owner or developer obtains an “affection plan” from the DM. The affection plan is a high-level general site plan that is issued with basic information containing the plot number, the land use classification and any other particular zoning requirements that are required by the DM. The plan will state the height allowance, the usage, any setback requirements and whether parking must be included.

Abu Dhabi

To assist in regulating the design, appearance and method of construction of new buildings, the DMT has adopted the International Codes of the International Code Council (such as the Building, Fire, and Plumbing Codes, etc) and the Abu Dhabi Environmental Health and Safety Management System. Any development must also comply with the statutory requirements of other government agencies, such as the DMT and Abu Dhabi Waste Management Control, among others.

Dubai

In addition to the three types of permits listed above, the Planning Law confirms that additional requirements may be imposed on permits by the DM, which could take the form of conditions, and that environmental impact assessments (EIAs) will apply in accordance with existing legislation, with the DM as the relevant authority.

The Planning Law envisages that decisions in respect of “major urban projects” may be issued by the Supreme Committee for Urban Planning. Further details are awaited as to the threshold for development being considered a major urban project.

Numerous technical guidelines and circulars issued by the DM and other relevant authorities also regulate detailed designs. These need to be examined on a case-by-case basis to ensure that the detailed design is compliant with the relevant regulations for the area where the building is being constructed.

In Abu Dhabi, the main authority responsible for regulating the development and designated use of land is the DMT.

In Dubai, the main authority responsible for regulating the development and designated use of land is the DM, subject to the oversight of the Supreme Committee for Urban Planning. Within the free zones, the relevant authorities have planning powers, subject to a degree of oversight by the DM.

An application is required to be made to the DMT (Abu Dhabi), the DM (Dubai) or the relevant free zone authority for approval of proposed developments or change of use. Generally, there are no formal consultation processes involving third parties, although the Planning Law suggests that in the future a certain degree of consultation may be provided for in Dubai.

In Abu Dhabi, the decision of a governmental authority may be reviewed by the Ruler of the Crown Prince’s Office by direct application; and in Dubai it is possible to apply to the Ruler’s Court. In both cases, the power to intervene in such decisions is entirely discretionary.

In Dubai, the Planning Law states that the Supreme Committee for Urban Planning will be responsible for dispute resolution. While further details can be expected in secondary legislation and guidance, the implication is that dispute resolution may be available for applicants.

Non-binding memoranda of understanding are common between master developers and statutory utility suppliers. Binding agreements are common with providers of district cooling services, which are sometimes project-financed. Formal agreements with local authorities are rare.

The DMT (Abu Dhabi) or the DM (Dubai) can order a contractor to stop work and, in extreme cases, to demolish unapproved structures. This is likely to be established during an inspection prior to the granting of a completion certificate.

A building completion certificate will not be issued if the building permit has not been complied with. The building completion certificate is required in order for occupation of the building to be allowed.

Various types of corporate vehicles are capable of holding real estate assets in the UAE. If the holding company of a real estate asset has foreign shareholders, the company may only hold the real estate asset within a designated investment area.

Limited Liability Company (LLC)

Onshore LLCs established in the UAE (outside the free zones) have historically been subject to foreign investment laws which required at least 51% equity participation by a UAE national. The UAE’s new Commercial Companies Law, which came into force on 2 January 2022, contains no general requirement for equity participation by a UAE national; however, certain activities have been designated as having strategic impact (for example, in the security and defence sector) and continue to require prescribed levels of local ownership.

JAFZA Offshore Companies

An offshore/free zone company can be 100% foreign-owned. If the asset is to be wholly owned by foreigners (and therefore in a designated area), a DLD Direction in 2011 confirmed that the shareholders are permitted by the law to use a JAFZA offshore company only to purchase and register the land interest (regulated by the Jebel Ali Free Zone Authority in Dubai and “accepted” by the DLD), and foreign companies in other jurisdictions are no longer permitted to register land ownership interests. The issue becomes more complicated if the intention is for the company to develop the land and sell units, villas, etc. Specific advice must be sought in such circumstances.

Public Joint Stock Company (PJSC)

Share capital is divided into negotiable shares of equal value. The nominal value of each share cannot be less than AED1 nor more than AED100. Shareholders have limited liability to the value of their shares. A PJSC must have at least five founder members.

Subject to implementation of the recent amendments to the Companies Law, UAE nationals must own at least 51% of the shares in the PJSC, and the founding members must subscribe for between 30% and 70% of the issued share capital.

Private Joint Stock Company (Private JSC)

A private JSC is similar to a PJSC but with certain differences, including:

• the minimum share capital is AED5 million;
• the shares cannot be offered publicly; and
• only two founder members are required.

The Companies Law provides that, unless specifically stated, all requirements that apply to a PJSC apply to a private JSC as well.

Tax Implications

Under the new CIT regime, income from immovable property derived by a legal entity, whether derived from sale or through leasing, will typically be subject to a 9% tax rate for “regular taxpayers” who are subject to the standard tax regime (taxable income up to AED375,000 is taxed at 0%).

Under the free zone tax regime, entities that are considered qualifying free zone persons (QFZPs) are eligible for a 0% CIT rate on certain types of income (ie, qualifying income), provided specific criteria are met. The regulations with respect to the free zone tax regime are relatively complex, but in essence, in a real estate context, only income from commercial properties located in the free zone may qualify for the 0% rate, provided the transaction is conducted with an entity registered within a free zone (ie, a free zone person).

Conversely, revenue from residential properties does not qualify for the 0% rate. It is important to note that properties such as hotels, motels, bed and breakfasts, serviced apartments, and similar establishments are not categorised as commercial properties for the purposes of the free zone tax regime.

While the UAE is not traditionally recognised as a funds jurisdiction, the development of offshore jurisdictions such as the DIFC and ADGM, with evolving legislation aimed towards the development of a funds market, has made these financial free zones a more attractive jurisdiction for the establishment of such real estate funds. UAE REITs can apply for corporate tax exemption if they meet certain specified criteria.

LLC

There is no prescribed minimum capital amount for an LLC, but share capital must be adequate. This can be decided by the shareholders, and there is no published guidance in this regard. In practice, a notary public currently accepts a minimum share capital of AED100,000 to AED150,000, divided into equal shares with a minimum value of AED1,000.

JAFZA Offshore Companies

AED1,000 applies for such companies, and shares must have a minimum value of AED1 each.

PJSC

AED30,000,000 applies for a general company, and this amount increases in the case of banks and insurance companies. Given the substantial capital requirement and the fairly restrictive rules of establishment and management, it is often not a suitable corporate vehicle for overseas investors wishing to establish a vehicle for investment purposes.

Private JSC

AED5 million applies for such companies.

LLC

An LLC must appoint a general manager to manage the company. The general manager can be of any nationality, but, in practice, rejection of a proposed general manager does occur without reason from time to time. An LLC must also appoint a UAE-certified financial auditor before the end of its first year of business.

JAFZA Offshore Companies

A JAFZA offshore company must appoint a registered agent, to whom notices are served. It must also have at least two directors, a general manager and a company secretary at all times.

PJSC

Since a PJSC is required to be listed, it has to comply with the governance requirements of the relevant stock exchange, which include various disclosure requirements to be met, the publication of accounts and other statements, as well as mandatory compliance with the Emirates Securities and Commodities Authority’s corporate governance code.

Private JSC

A private JSC must have a board of directors consisting of between three and 11 directors, and each director’s term must be no more than three years (subject to re-election). There must be a chairman from among the directors, and such chairman must usually be a UAE national.

The annual compliance costs for an entity investing in real estate vary in line with the needs of each individual company.

In Abu Dhabi, the law does not provide a clear distinction between a lease (a personal right) and a usufruct (a right in rem). The law states that long leases (ie, those with a term of 25 years or more) are property rights, but it does not clearly define the characteristics of leases with terms shorter than this. In practice, the DMT has deemed leases for a term of more than four years granted in favour of a non-UAE national (or a company owned in whole or in part by a non-UAE national) in relation to land outside an investment zone, and which contain rights to sublet, to be usufructuary rights (and therefore not capable of being granted to a non-UAE national outside an investment zone).

In Dubai, a long lease is one with a term of ten years or more, and these require registration at the DLD. For leases of less than ten years, registration is required but at a nominal cost on the “Ejari” system.

In Abu Dhabi, for leases of less than four years, the DMT requires parties to use a mandatory form of lease that records key provisions (eg, parties, premises, rent and term, etc). It is common for parties to attach supplemental terms to this mandatory form. For leases of over four years, the form of lease is not mandated.

In Dubai, for leases of less than ten years, the DLD requires parties to use a mandatory form of lease that records key provisions (eg, parties, premises, rent and term, etc). It is common for parties to attach supplemental terms to this mandatory form.

Rent in the UAE may be freely negotiated between the parties to the lease.

In Abu Dhabi, Executive Council Resolution No 14 of 2016 on the leasing of premises agreements prohibits rental increases of greater than 5% per annum.

In Dubai (excluding the DIFC), Decree No 43 of 2013 provides for the average market rent to be set according to the Rent Index for the Emirate of Dubai, as approved by the Real Estate Regulatory Agency (RERA). The percentage of the maximum increase in the real estate rents is determined on renewal according to the current annual rent amount compared with the average rent for a similar property. While these restrictions apply to both residential and commercial property, in practice, for commercial property, agreed-upon alternative terms (such as fixed increases) are likely to be respected.

The terms of a lease may be freely negotiated between the parties, provided that the contents of the lease agreement do not contravene law.

Both the Abu Dhabi and Dubai landlord and tenant laws include provisions in relation to the repair and maintenance, termination, eviction and term of leases where the lease agreement remains silent on such topics, and are mandatory in application; although in practice most contracts will contain express terms on those matters and on which provisions must not contravene the applicable law.

The rent payable under a lease must be specified in the lease agreement, and is generally subject to fixed or index-linked increases at regular intervals. In addition to a base rent, turnover rents are common in retail lettings.

Market rent review provisions are also included in some leases, but these clauses are not used as frequently as they are used in more developed real estate markets, since reliable comparable transactions can be difficult to establish due to the lack of publicly available market data.

Revised rents may be determined by applying a fixed or index-linked percentage increase, or by determining the open market rent. 

VAT applies to rent payable for a commercial property.

A tenant’s liability for upfront costs should be set out in the lease agreement. The parties to a lease commonly agree that the tenant will be responsible for paying the registration fees associated with registration of the lease at the relevant registration department. Tenants are also generally responsible for the cost of opening an account for utilities and telecommunications, and for paying for meters and connections in new properties. A tenant may also be liable for the fees of any agent (such as real estate brokers) involved in the transaction.

A commercial lease agreement may impose an obligation on the tenant to pay a service charge to the landlord, to be used for the maintenance and repair of the common property.

Premises will usually be individually metered. In such cases, the tenant will usually purchase services such as electricity or water directly from suppliers. Where premises are not individually metered, leases may be inclusive of utilities and telecommunications, and the landlord may recover such costs through the service or separate utility charge.

A landlord will typically pay for building insurance in a multi-let property, and a tenant will pay for its own contents insurance. A landlord operating a service charge will then recover the costs of the building insurance through the service charge. Under UAE federal law, there is automatic rent cesser following damage or destruction of the property.

Leases normally specify the permitted use. If the lease is silent on this matter, the use should be consistent with zoning authorised for such property and the licensed activities of the tenant company.

Abu Dhabi and Dubai laws both require the tenant to obtain the consent of the landlord to all proposed works. The terms of a lease may also set out:

• what kinds of alteration or improvement works the tenant is permitted to carry out;
• when the landlord’s consent should be sought for such works; and
• whether any types of works (eg, structural) are absolutely prohibited.

Certain works require the consent of government authorities. In order to obtain such consent, these government authorities will require evidence of the landlord’s consent to such works.

Abu Dhabi

Residential

There is a maximum number of tenants who are permitted to occupy a single dwelling, which varies depending on the type of and number of rooms in the dwelling. Two months’ notice for renewal or termination is required for residential leases.

Commercial

Commercial leases have similar rules to those applicable to residential leases, with minor exceptions.

Three months’ notice for renewal or termination is required for commercial leases.

Hotels/serviced apartments

There are no specific provisions that apply to hotel leases. Leases of serviced apartments do not fall within the ambit of landlord and tenant legislation.

Dubai

The same laws currently apply to residential, industrial, office and retail leases. The exception to this is accommodation provided by an employer to an employee. The DIFC Leasing Law 2020 draws a distinction between leases of commercial and of residential premises, with enhanced protections afforded to tenants of residential premises.

Insolvency law applies only to commercial companies. If a tenant (not a commercial company) is insolvent, the regular landlord and tenant laws would apply, which would comprise the remedies for failure to pay rent. There are no provisions specific to insolvency in the landlord and tenant laws.

Under insolvency law, the debtor must first apply to the court for:

• a preventative composition, in which case it is the debtor’s duty to inform the court, within 30 days of doing so, of all and any creditors’ rights against the debtor; or
• bankruptcy, in which case any ordinary creditor of ordinary debt under AED100,000 can apply to the court to open proceedings, as long as the creditor has warned the debtor to settle in writing and this has not been done within 30 days of the written notice to settle.

Parties are free to negotiate the form of security to be provided. Typically, a landlord may ask for a security deposit, bank guarantee and/or parent company guarantee.

Although it is common for a landlord to take a security deposit from a tenant, there is no statutory guidance on how such deposits must be held, when they can be utilised and when they must be returned. It is important, therefore, to ensure that a lease contains detailed provisions on dealing with the security deposit.

If a lease term expires and the tenant remains in the property with the landlord’s knowledge and without any objection by the landlord, the lease shall (in Abu Dhabi) be renewed for a similar term and on the same conditions, or (in Dubai) renewed for a similar term or a period of one year (whichever is less) on the same terms.

If the lease agreement does not specify the terms of renewal, the Abu Dhabi and Dubai landlord and tenant laws set out a standard position to be implied into the contract; and if a party does not wish to renew or wishes to re-negotiate the terms of the lease, notice must be given in accordance with the landlord and tenant laws.

In Abu Dhabi and Dubai, a tenant may only assign the lease or sublease all or part of the leased premises with the written consent of the landlord. Unless otherwise agreed, the landlord may withhold or grant its consent at its sole discretion.

In Abu Dhabi, tenants have a statutory right to request the Rent Dispute Settlement Committee to terminate a lease where the landlord hands over the property in such a poor condition that it cannot be used for its intended purpose.

The Civil Code also allows parties to an agreement to agree to an early termination.

Break rights in longer-term leases are common, to allow tenants greater flexibility. Landlord break rights are less common and may not be effective in Abu Dhabi, unless the landlord can also establish a ground for termination.

Abu Dhabi

Leases of less than four years are required to be registered by the landlord (or property management company) in the Tawtheeq system. Leases of between four and 25 years attract a registration fee equal to 1% of the rent “on a one-year lease basis”. The authors understand that the DMT’s current practice is to apply the 1% fee against the year-one rent value, multiplied by the total length of the term. Leases for over 25 years attract a registration fee equal to 4% of the value of consideration.

Dubai

Leases of less than ten years are required to be registered on the Ejari system, using the DLD mandatory form of lease. A nominal registration fee is payable. Leases with a term of ten years or more require registration on the full register at the DLD. A registration fee equal to 4% of the total rental value of the lease is payable in equal proportion by the landlord and tenant, unless agreed otherwise.

Abu Dhabi

Article 23 of Law No (20) of 2006 (as amended) sets out grounds that permit a landlord to seek early termination of a lease and to re-enter the premises:

• failure to pay rent;
• assignment or subletting the premises without consent;
• high occupancy levels;
• use of the premises other than for the purpose let or for a detrimental purpose;
• where the landlord wishes to demolish and redevelop the premises;
• where the landlord wishes to occupy the premises for their own purpose;
• condemnation of the premises;
• breach of the tenant’s obligations; or
• demolition notice from authorities.

Dubai

Article 25 of Law No (26) of 2007 (as amended) sets out grounds that permit a landlord to seek early termination of a lease and to re-enter premises:

• failure to pay rent, after notice;
• subletting the premises, without consent;
• illegal or immoral use of the premises;
• failure to keep the premises occupied for specified periods of time;
• any change to the premises which renders them unsafe, or which causes damage;
• unauthorised use of the premises;
• condemnation of the premises;
• breach of the tenant’s obligations; or
• demolition notices from authorities.

In both Abu Dhabi and Dubai, where a landlord wishes to terminate a lease prior to its expiry pursuant to an event of default, 30 days’ prior written notice of default should be served on the tenant through the notary public or by registered mail. If the tenant disputes the grounds for early termination of the lease, a case can be lodged at the relevant Rent Disputes Settlement Centre. There are no guidelines as to how long the process would take.

Under the Civil Code, property can be appropriated by the government for the public benefit. In such circumstances, “just compensation” must be paid. Whether and to what extent the compensation would cover any tenant’s interests in the property is dealt with on a case-by-case basis.

The usual remedies for landlords include the following.

Compensatory Remedies

These are any damages that the landlord may be entitled to as a result of the breach and/or termination, including accrued rights (such as unpaid rent, service charges, or other payments under the terms of the lease) and other damages (such as damages caused to the property over and above what may be covered by any security deposit).

Eviction

There may be specific notice requirements that apply for specific types of eviction (see 6.21 Forced Eviction).

Pricing structures will vary according to the nature of the works. The most common pricing structures are:

• lump sum – a pre-agreed sum that the contractor will be paid to perform the works under the construction contract;
• measurement or unit price – whereby the work is measured and valued on the basis of a bill of quantities;
• prime cost – payment is made for the costs of labour and materials used; and
• cost plus – payment is made for the prime cost, plus an added percentage for profit.

Payment is usually made against the certification of completed works by an engineer appointed by the employer.

While there is no local standard suite for construction contracts in the UAE, many construction contracts for major projects in the UAE are based on the industry standard form of contracts published by the International Federation of Consulting Engineers (FIDIC) (with appropriate project specific amendments), and such responsibility for design and construction is allocated contractually in accordance with standard international practice, depending on the specific requirements of the project.

The contractual devices included in the FIDIC standard forms of contract are typically used to manage risk allocation in the context of a construction project (however, the standard FIDIC conditions of contract are often amended by employers to transfer additional risk to the contractor). While the majority of the standard FIDIC provisions are generally viewed as being enforceable under UAE law, the Civil Code provides that an agreement or a contractual provision will be unenforceable if:

• it conflicts with a mandatory provision of the law;
• it is contrary to public order or morals;
• it is performed in bad faith; or
• a right is exercised in an unlawful manner (including where the benefit realised is disproportionate to the harm suffered by others, or where the interests sought to be realised conflict with Sharia).

Any parts of an agreement that conflict with or are inconsistent with such mandatory provisions will either be rendered automatically void or will provide the courts with the power to adjust the agreement to ensure consistency with mandatory provisions.

Virtually all construction contracts in the UAE require the works to be completed by a specified date.

Instead of the employer demonstrating the damage it would suffer for late completion of the works by the contractor (which may be difficult to quantify), it is standard practice to require the contractors to agree to “liquidated damages” (LDs) (eg, a pre-agreed fixed amount) for delay.

Pursuant to Article 390 of the Civil Code, parties can pre-agree to damages that become due on the occurrence of certain conditions (eg, a breach of contract, or delay). In a formal dispute, the effect of Article 390 is to reverse the burden of proof: it is for the party seeking to avoid, or otherwise amend, any pre-agreed damages to demonstrate that the other party has not suffered (in full or part) because of them. In all cases, the court (or tribunal in the case of an arbitration) retains the discretion to amend any pre-agreed damages, whether of its own volition and/or at the application of a party.

Importantly, pre-agreed damages are to be distinguished from “penalty” clauses under English law.

Construction contracts in the UAE typically provide for:

• an “on demand” performance bond for 10% of the contract price;
• an “on demand” advance payment guarantee securing the employer’s advance payments under the contract; and
• retention of 10% from each interim payment as security for the contractor’s obligations to remedy defects during the defects notification period (or occasionally a bond in lieu of such retention).

Company guarantees from a contractor’s parent or group company in favour of the employer are also fairly common, especially where the contracting entity is a special purpose vehicle.

The Civil Code provides a contractor or consultant with the potential remedy of a statutory lien over property, in circumstances where the contractor or consultant’s work has produced a beneficial effect on the property, but the employer has failed to pay for such work. This entitles the contractor or consultant to retain (and not hand over) the property they have improved pending payment for such work by the employer. However, this mechanism remains relatively untested, and contractors and consultants typically rely on contractual remedies for non-payment.

There are no express requirements to be satisfied under UAE law before a building may be inhabited or used, other than the issue of the “completion certificate”. However, the law is unclear as to whether this requirement relates to the completion certificate from the relevant authority confirming that construction is complete, or to the completion certificate issued by the engineer under the construction contract.

In practice, a building completion certificate from the relevant municipality (following inspections of the works by the relevant authorities and civil defence) is usually stipulated as a contractual requirement before construction works can be used and occupied.

Since 1 January 2018, VAT at the standard rate (5%) applies to the sale of commercial property (whether such property is newly constructed or not). If the transaction can be treated as a “transfer of a going concern”, the transfer shall not be considered a supply for VAT purposes (hence no VAT will arise). The conditions for obtaining this treatment could be complex and require appropriate legal analysis.

No methods are currently used to mitigate transfer, recordation, stamp or other similar tax liability on acquisitions of large real estate portfolios.

For CIT, various forms of business restructuring relief are available. These types of relief can significantly reduce the tax impact of intra-group transfers or transfers of a business (or an independent part thereof).

In Abu Dhabi, a municipality fee applies to anyone leasing property, except UAE nationals. Fees are calculated at 5% of the rent (with a minimum of AED450), which is paid to the Abu Dhabi Distribution Company (ADDC) or Al Ain Distribution Company (AADC) on behalf of the DMT, in addition to water and electricity bills. Registration for the fees occurs automatically when the lease is registered with Tawtheeq.

In Dubai, a municipality fee applies on the occupation of property, and this is calculated as 5% of the annual rent or 0.05% of the value of the property (in the case of ownership). Value is generally treated as the amount for which the current occupier bought the property.

Income earned from immovable property in the UAE by foreign individual investors, who are considered UAE taxpayers based on the criteria provided in 2.10 Taxes Applicable to a Transaction, is currently not subject to any withholding tax in the UAE, as the rate is set at 0%. However, it is important to note that this rate might change in the future.

Foreign legal entities that derive income from immovable property in the UAE will be considered to have a nexus in the UAE. Non-resident persons that have a nexus in the UAE are required to register for corporate income purposes.

Under the new UAE CIT regime, no specific rules have been introduced to date regarding depreciation deductions for real estate. However, in the absence of specific rules governing the depreciation of real estate assets, for tax purposes depreciation rules will default to the guidelines set out under applicable accounting standards (ie, the International Financial Reporting Standards).