Real estate ownershipi Planning
Abu Dhabi Municipality and Dubai Municipality are the authorities primarily responsible for overseeing development, building regulations and planning controls (including change of use) in their respective emirates.
Buildings within an investment zone, freehold area or free zone may also be subject to the regulations and controls of the master developer or regulatory authority for that area. Local licensing requirements should also be observed. For example, a developer wishing to establish a new project in Abu Dhabi or Dubai must first register itself and its project with Abu Dhabi Municipality or RERA (as applicable).ii Environment
Environmental law comprises laws at the federal and local levels and, within the free zones, free zone regulations. A number of international conventions and protocols are recognised. Federal law controls all forms of pollution and applies the polluter-pays principle. There are substantial penalties for polluting the environment.
Developers must identify areas of environmental importance or sensitivity and which of their activities may cause harm. They must also undertake an environmental impact assessment for their project.
Because environmental liabilities may pass with ownership of property, a prospective purchaser should consider what diligence and protections are appropriate, such as physical inspection and testing of the land and warranties from the seller in the purchase agreement (against which the seller should disclose any known issues).
In Abu Dhabi, the competent authority is the Environment Agency – Abu Dhabi. In Dubai, the competent authority is the Environment Department of Dubai Municipality. Activities within an investment zone, freehold area or free zone may be subject to the regulations and controls of the master developer or regulatory authority for that area.iii Tax
The value added tax law (the VAT law), which introduced VAT to the UAE, came into effect from 1 January 2018. The key features for the property sector include:
- taxable supplies: the provision of real estate for lease and sale will be a taxable supply;
- rating of supplies: supplies will be rated as (1) exempt, where no VAT is chargeable; (2) zero rated, where VAT is chargeable at a zero rate; or (3) standard rated, where VAT is chargeable at 5 per cent;
- categories of supply: the VAT law differentiates the main taxable supplies (in general terms) as follows:
- sale of bare land: exempt from VAT;
- sale of residential property: the first-time supply (such as new apartments by developers) within three years of completion will be zero rated. Subsequent supplies (such as onward sales) will be exempt from VAT;
- lease of residential property: the first-time supply within three years of completion will be zero rated. Subsequent supplies will be exempt from VAT;
- sale of commercial property: standard rated;
- lease of commercial property: standard rated; and
- associated supplies (such as service and utility charges): standard rated;
It has also previously been announced that the UAE may introduce corporate tax; however, the timeline and contents of the corporate tax regime have yet to be confirmed.
Fees are also payable in respect of the registration of property interests.
There may be other costs associated with ownership or occupation. In Dubai, a fee is levied on non-UAE residents and business occupiers (5 per cent of annual rent). Hospitality businesses such as hotels must pay a municipality tax (7 per cent of turnover) and per night per room fee (ranging from seven to 20 dirhams, depending on hotel category). In Abu Dhabi, a fee is levied on non-UAE residents and business occupiers (5 per cent of annual rent for all premises other than residential villas and 7.5 per cent of annual rent for residential villas, subject to a minimum annual fee of 450 dirhams). Hospitality businesses such as hotels must pay a tourism fee (3.5 per cent of turnover) and municipality tax (2 per cent of turnover) and per night per room fee (10 dirhams).iv Finance and security
Federal law outlines the basic principles regarding the creation of security, including mortgages, over real property. Provided a mortgage is validly created, the mortgagee will acquire a property right and will take precedence over ordinary creditors and creditors subsequent in rank in satisfaction of the debt from the proceeds of sale.
In Abu Dhabi, a local law and implementing regulations specifically relating to mortgages was introduced in 2016. Historically, actual registration of mortgages reflected the overall registration of property interests in Abu Dhabi (mostly completed by UAE nationals outside the investment zones). Consequently, many funders chose to utilise an unregistered mortgage combined with a conditional assignment of the mortgagor's rights to the property. Should the borrower default, the funder would exercise its step-in rights and take control of the property. This scenario is changing following the introduction of processes for wider registration of property interests in Abu Dhabi.
In Dubai, a local law specifically relating to mortgages was introduced in 2008. This requires that all mortgages be registered with the Dubai Land Department, that the mortgagee be a bank, company or financial institution licensed and registered with the UAE Central Bank, and that the mortgagor be the owner of the property or property right and able to dispose of it. Actual registration of mortgages is readily available and completed.