Does the concept of a 'permanent establishment' apply when a foreign person invests in real estate and, if so, how much does it cost to set up such a permanent establishment, how long does it take and what corporate governance requirements apply?
From a corporate licensing perspective, the concept of a permanent establishment applies when a legal entity is established in the UAE and is inherently subjected to obtaining a registered office address in the said Emirate and/or specific zone. The concept of permanent establishment would then apply when the entity invests in the real estate asset which is recorded as its fixed place of business. That said, there is no inherent concept of a permanent establishment from a corporate licensing standpoint by merely investing in real estate without operating via a UAE established corporate vehicle. The costs establishing a corporate vehicle will depend on the type of vehicle and its location.
Real estate outside of the investment areas in Abu Dhabi can only be owned by UAE nationals, companies wholly owned by them or public joint-stock companies (PJSC) - provided there is no foreign ownership. Therefore, such nationals may use a local limited liability company (LLC), a Private Joint-stock Company (Private JSC), or in some cases a PJSC, if they wish to hold the real estate asset through a company. It is essential to include “real estate” in the “permitted activities” of the company authorized by the Abu Dhabi Economic Department.
Foreigners (ie nationals of countries other than the UAE) can use an LLC, a PJSC or a Private JSC where the real estate is in an investment area but, under current laws governing the ownership of these vehicles, at least 51% of the shares in these vehicles must be held by a UAE national (or company owned by UAE nationals).
There are also a number of “free zones” in the UAE. The most prominent in Abu Dhabi is the Abu Dhabi Global Market financial free zone. These are authorities under which companies can be established with a 100% foreign shareholding. Free-zone companies can own property in the free zone they are incorporated in, subject to the laws of the particular free zone but, with regard to property outside the free zones, free-zone companies are generally not permitted to hold real estate assets in such areas. Specific advice should be sought regarding free zones because each one is different in terms of its rules, regulations and practices.
Whatever type of establishment is used, there will be additional costs, such as taking legal and possibly tax advice on the most appropriate vehicle and structure to use. There will also be costs associated with drafting the constitutional documents for the company to regulate the rights and obligations of each shareholder. This is particularly important in the case of a LLC being owned by a local and a foreigner because a detailed shareholders agreement will be required. The profit share of the shareholders in a LLC might be different from the percentage of shareholding.
An LLC in Abu Dhabi usually takes six to eight weeks to become operational from the date that the required documents are received in Abu Dhabi in case one or more of the shareholders is a non-GCC national. If all the shareholders are UAE or GCC nationals the process is likely to be quicker.
The corporate governance requirements of an LLC are minimal but do include the appointment of a UAE licensed auditor and a general manager. The shareholders of the LLC can choose whether to have a board of directors or not.