Real estate can be held through a DIFC Foundation in some cases, but the answer depends on the property’s location, local ownership rules, transfer costs, tax consequences, and the investor’s succession planning goals.
UAE Real Estate and DIFC Foundations
A DIFC Foundation is a legal entity incorporated in the Dubai International Financial Centre. Because DIFC is a financial free zone within Dubai, real estate ownership is still governed by local emirate rules, especially for property in Dubai and Abu Dhabi.
In Dubai, freehold property in designated areas can be owned by UAE nationals, GCC nationals, foreign nationals, and companies through different structures. Companies registered in Dubai mainland, UAE free zones, and offshore jurisdictions may own property in designated areas, subject to Dubai Land Department requirements.
A DIFC Foundation can generally own Dubai real estate, subject to Dubai Land Department registration requirements and applicable transfer fees. The property title would be registered with the Dubai Land Department in the Foundation’s name.
The practical process should be reviewed before transferring property into a DIFC Foundation. Issues may include:
- Transfer fees
- Existing mortgage liabilities
- Consent requirements from developers
- Consent requirements from mortgage lenders
- Dubai Land Department registration rules
Holding International Property
For real estate outside the UAE, the position depends on the law of the country where the property is located.
In many jurisdictions, real property can be held by a foreign legal entity, and a DIFC Foundation may qualify as one. However, several caveats apply.
Some jurisdictions restrict foreign ownership of real estate, either generally or for specific types of property. These rules must be checked before transferring property into a Foundation.
A transfer into a Foundation may also trigger taxes or duties in the property’s jurisdiction, including:
- Stamp duty
- Land transfer tax
- Capital gains tax
In the UK, transferring property to a company or foundation can trigger Stamp Duty Land Tax. If the property has increased in value, there may also be capital gains tax implications.
Some jurisdictions impose annual charges or surcharges when property is held through a foreign legal entity. In the UK, the Annual Tax on Enveloped Dwellings applies to UK residential property held by companies and may apply to structures involving foreign foundations.
Succession Planning Benefits
Despite the complexity, holding real estate through a DIFC Foundation can be useful for succession planning, especially for investors with multiple properties or family members in different countries.
When the Founder dies, property held by the Foundation does not need to pass through probate in the jurisdiction where the property is located. The Foundation continues to exist, the Council continues managing the assets, and distributions to beneficiaries follow the By-Laws.
This can reduce delays and legal costs compared with holding property personally and requiring local probate.
For example, a Dubai investor with properties in Dubai, the UK, and Portugal could face three separate probate processes, three sets of inheritance tax issues, and three succession law systems if the properties are held personally.
If those properties are held through a DIFC Foundation, one structure and one governing document can control distributions, potentially reducing probate exposure by years and saving significant legal and tax costs.
Property-by-Property Analysis
A DIFC Foundation should not automatically be used for every property.
The analysis should be done property by property and jurisdiction by jurisdiction. Each asset should be reviewed for:
- Transfer costs
- Ongoing tax consequences
- Mortgage implications
- Local ownership restrictions
- Succession planning benefits
- Probate exposure
- Whether the property is better held personally
In many cases, the result may be a mixed strategy. Some properties may be transferred into the Foundation, while others may remain personally owned and covered by jurisdiction-specific wills.
Source article: knightsbridge.ae
