REALWorld Law

Corporate vehicles

Permanent establishment

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?

Angola

Angola

A foreign entity shall be deemed to have a permanent establishment in Angola if it has a fixed place therein through which it carries out its activity (wholly or partially) including, without limitation, a place of management, a branch, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

Moreover, a foreign company shall also be deemed to have a permanent establishment in Angola to the extent that:

  • It has a construction or assembling site or supervision activities carried out therein, for a period exceeding 90 days in any given 12-month period
  • It provides services in Angola through its employees or any other personnel hired for said purpose, for a period exceeding 90 days in any given 12-month period, or
  • A person – other than an agent of independent status – is acting, in the country, on its behalf in respect of any activities which that person undertakes for the enterprise, if that person has the authority to conclude contracts in the name of the company or, if in the absence of said authority to conclude contracts, it maintains a stock of goods or merchandize for delivery on behalf of the company

In addition to the above, any foreigner aiming to pursue an activity in Angola must comply with terms set forth in the Private Investment Law. This means that it is paramount to file record of an investment project, describing the type of activity to be pursued and ultimately via the incorporation of a local entity.

Australia

Australia

'Permanent establishment' is a taxation concept in Australia and not a corporate vehicle as such.

Belgium

Belgium

It is possible to invest in real estate in Belgium either through a permanent establishment or without a permanent establishment (vaste inrichting/établissement stable). The costs of setting-up a permanent establishment amount to approximately €2,500. Recurring costs relating to corporate and accounting compliance include accounting fees for corporation tax and VAT purposes. These annual costs amount to approximately €20,000.

A permanent establishment takes about two days to become active. There are no applicable corporate governance requirements, nor is there any regulatory control. 

Bosnia-Herzegovina

Bosnia-Herzegovina

Yes, the concept applies. The costs for setting up a permanent establishment are estimated at up to KM 1,000 in the Federation of Bosnia and Herzegovina (FBiH), while in the Republika Srpska (RS) the minimum share capital is KM 1. It usually takes 30 days to set up a permanent establishment. A new legal entity must be set up. Although very similar, the procedures for establishing legal entities are governed by separate laws in the FBiH and the RS, and there are some important differences.

Canada

Canada

There is no requirement for a permanent establishment. However, if a foreign corporation is purchasing land proof of corporate existence must be provided and if the corporation is carrying on business it must be extra-provincial registered in the appropriate province and have an address for service. Extra-provincial registration costs less than CA$1,000.

China

China

Yes, the concept of 'permanent establishment' applies.

For non-self use, a Foreign Invested Enterprise ("FIE") must be specifically set up for the proposed investment project. The establishment of a real estate FIE requires approval from the relevant local government and the Ministry of Commerce ("MOFCOM") or its local counterpart and must be filed with central MOFCOM, and the acquisition process may involve approval from the Land Administration Bureau and Real Estate Administration Bureau where relevant. In addition, investors will need approval from the State Administration of Foreign Exchange (SAFE) to enable settlement into RMB of foreign funds for the proposed acquisition.

For self-use, FIEs (not including foreign invested real estate companies) and representative offices are permitted to purchase non-residential property for their own use in the city where such FIEs or representative offices are located.

Croatia

Croatia

While it is possible to set up a branch office of a foreign entity (a permanent establishment) in Croatia, foreign investors who are not EU citizens may be subject to reciprocity (ie they can only acquire real estate in Croatia if Croatian citizens have equivalent rights in the investor's home country) unless they invest in real estate by acquiring all or part of an existing local legal entity, or by establishing a new company in Croatia.

Costs are between HRK3,500 and HRK7,500 for a limited liability company (doo) plus the minimum share capital amounting to HRK20,000. The cost of setting up a branch office includes state charges amounting to HRK400 and the price of publishing an announcement in the Official Gazette which amounts to HRK900. Further costs include translation fees for the company's constitutional documents. The cost of setting up a representative office of a foreign company includes state duties of HRK1,000 and translation fees.

On average, setting up a permanent establishment in Croatia takes approximately two weeks from the date all the necessary documents are submitted to the commercial court. A branch or representative office the foreign company must nominate a single person to represent it.

Czech Republic

Czech Republic

The concept of a permanent establishment (branch) may be relevant in certain cases. According to the latest legal interpretation of the relevant provisions of the new Civil Code, should a foreign person (either a natural person or a legal entity) outside the EU invest in real estate, it will be obliged to do so only through a branch office. Foreign persons within the EU, however, are no longer subject to such an obligation. To set up a branch office costs approximately CZK80,000 including legal fees. It takes around 20 days to complete this process.

A permanent establishment must be registered in the Commercial Register in the Czech Republic. The foreign entity must appoint a chairman (director), who must be empowered to legally represent the permanent establishment.

Denmark

Denmark

The concept is not relevant.

France

France

The concept is relevant. The fee for registration in the Companies and Trade Register is approximately €300. Setting up a permanent establishment will also involve additional costs. Registration takes approximately three weeks from the date the Register of Business Enterprises receives all the relevant documents. However, from a tax perspective, mere ownership of real estate in France does not constitute a permanent establishment.

In France, when a foreign company invests directly in real estate without setting up a corporate vehicle or subsidiary in the country, the foreign company concerned is obliged to register in the Companies and Trade Register and to nominate an individual who is responsible for the company's business affairs in France.

The branch office must also file an extract of the accounts relating to the company and complete an annual tax return.

If the branch office conducts business that is subject to VAT, a form detailing the sales/turnover must be submitted to the tax authorities every month.

The financial accounts must be audited by a certificated auditor. Annual costs amount to approximately €5,000.

Germany

Germany

In Germany, real estate assets can be held in two ways: either with or without a permanent establishment (Betriebsstätte). In the first case the investor either sets up a registered permanent establishment in Germany (ie a branch office) or acts through a non-registered permanent establishment.

A permanent establishment is a fixed place of business (eg an office) in which the investor's trade or business is carried on. Investors can therefore only directly invest through a permanent establishment if they operate a trade or business. This is deemed to be the case in any of the following scenarios:

  • the investor provides significant extra services besides real estate itself 
  • the investor has a permanent representative in Germany that is legally empowered to conclude contracts on behalf of the investor 
  • the investor sells more than three real estate assets (which may include interests in real estate holding partnerships and real estate funds) within five years, or the sale of the real estate occurs shortly after its construction (ie approximately five years after construction is completed).

The cost of setting up a registered permanent establishment is approximately €1,000, including fees for registration in the commercial register and notaries' fees.

At best, setting up a permanent establishment is likely to take four weeks (including preparatory work, obtaining the necessary documents and filing for registration). However, since registering a permanent establishment requires certain documents from the investor's home country (such as certified official register excerpts, a certificate from the secretary and expert opinions) the process more usually takes about six weeks. Registration itself may take additional time after the application for registration has been filed, depending on the workload at the local court in charge of the commercial register.

A permanent establishment, irrespective of whether or not it is registered, does not have to comply with any specific corporate governance requirements under German corporate law.

Hong Kong

Hong Kong

The term ‘permanent establishment’ is a taxation concept in Hong Kong and is not a corporate vehicle as such. It is generally used in the context of double taxation treaties where the concept is relevant to the tax rights of the state in which a permanent establishment has been created.

Hungary

Hungary

A direct investment in a real estate can be made in Hungary either as:

  • An investment without a permanent establishment
  • An investment with a permanent establishment (either a branch office or a commercial representative office)

Any direct investment by a foreign entity may create a permanent establishment in Hungary.

A branch office is part of a non-resident entity’s organization that has economic independence, but no separate legal personality, and may carry on business activities in Hungary, sign agreements and undertake obligations. A commercial representative office is also part of the organization of a foreign company, however it is not permitted to carry on business activities and may only be engaged in preparing and concluding contracts and providing information to clients on behalf of the foreign company. Both branch offices and commercial representative offices are registered by the Court of Registration in the commercial register. In the absence of an international treaty or mutual reciprocal arrangements between the relevant countries (eg the bilateral agreement between Hungary and Switzerland), permission is required for a foreign company to acquire ownership of real estate through a Hungarian branch office or a Hungarian commercial representative office. If a branch office or commercial representative office is dissolved, the foreign company must dispose of its real estate within one year unless the original acquisition did not require authorization from the relevant administrative office or a specific exemption was granted when the branch office or commercial representative office was registered.

The set-up costs of a branch office or commercial representative office are:

  • Stamp duty: HUF50,000
  • Publication fee: HUF5,000
  • Legal fees
  • Additional costs, such as notarial fees, translation costs and apostille

The time available for the Court of Registration to decide on registration is usually 15 working days. An application for registration may only be submitted to the Court of Registration electronically through a lawyer.

The representative of a branch office and the representative of a commercial representative office must be employed, under contract or have a long-term service agreement, and must be resident in Hungary.

Ireland

Ireland

Investment in real estate may be c­arried out without a permanent establishment in Ireland or through a permanent establishment. In both instances the foreign company can hold the real estate asset directly.

A foreign company may create a permanent establishment in Ireland by establishing a branch in Ireland. The cost of registering a branch with the Companies Registration Office is approximately €1,500, plus VAT and outlay and the process takes approximately two weeks from the date of filing.

All foreign companies with a branch in Ireland must file the following documents with the CRO:

  • The annual accounts of the company including, where it has one or more subsidiaries, any consolidated accounts of the group
  • The annual report of the directors for the period (if required)
  • The report of the auditors on the company accounts and on the directors’ report (if relevant)

If filing copies of accounts with the CRO these must be accompanied by a certificate executed by a director and the company secretary confirming it is a true copy of the original.

The CRO must be provided with the name and address of the person nominated to receive notices and other documents, and in the case of a branch, a person who is responsible for ensuring compliance by the branch in Ireland. This person must be resident in Ireland.

Italy

Italy

A direct investment in real estate in Italy can be made either with or without a permanent establishment. The cost of setting up a permanent establishment in Italy is approximately €1,500. The time required to set up and to make it operative is approximately 10 days. No specific corporate governance requirements apply.

Japan

Japan

The term ‘permanent establishment’ is not a generically used term in Japan, other than for tax purposes where the concept is relevant to the tax rights of the country in which a permanent establishment has been created.  Generally, for tax reasons, investors who are not resident in Japan would seek to avoid creating a permanent establishment in Japan.  A Japanese limited liability partnership (yugensekinin-jigyokumiai, LLP) is not popular for non-Japanese real estate investors since at least one partner needs to be a Japanese resident, and all the partners, in general, need to participate in the business of the LLP.

The basic cost of setting up an LLP is often minimal.  There are, however, additional costs such as taking legal and tax advice on whether this is an appropriate vehicle and structure and substantial cost will be incurred in drafting and negotiating (where necessary) a suitable constitution for the investment vehicle which regulates the rights and obligations of the investors and as between the investors and the sponsor or investment manager.

An LLP can be established by execution of an LLP agreement, payment of capital and registration of the LLP.  The establishment of an investment vehicle with negotiated terms which will be suited to investors and the raising of funding from investors for that investment fund may take considerable time and the relationship and rights and obligations between the partners is usually governed by an LLP agreement.

Where a Japanese incorporated company is used, the Companies Act applies.  This provides a comprehensive code governing the rights and obligations of a company itself, its directors and shareholders.  Where a Japanese branch of a foreign company is used, the Companies Act applies to some extent.

Netherlands

Netherlands

This concept is not relevant in the Netherlands.

Nigeria

Nigeria

In Nigeria, the concept of permanent establishment relates to companies that are registered outside Nigeria and are considered non-resident companies. Under these rules, non-resident companies may be liable to Nigerian tax on profits that are attributable to activities carried out from a ‘fixed base’ in Nigeria. The rules are not applicable to direct foreign investment in real estate in Nigeria, as the foreign investment needs to be effected through a Nigerian-registered corporate vehicle. The set-up costs and corporate governance requirements of Nigerian corporate vehicles are detailed elsewhere in this section.

Norway

Norway

It is possible for a private investor to effect direct investment in real estate in Norway without a permanent establishment (fast driftssted). A private person or a company conducting business in Norway must however have a permanent establishment for investment purposes. A permanent establishment for investment purposes should not be confused with a permanent establishment from a fiscal point of view.

The fee for registration of a branch in the Norwegian Register of Business Enterprises is approximately NOK2,800 for filing on paper. There will also be additional legal costs. It takes approximately one month from the date the Norwegian Register of Business Enterprises receives all relevant documents.

The branch must file an extract of the accounts relating to the main company and complete an annual tax return. If the branch office conducts business subject to VAT, a form detailing the sales/turnover must be submitted to the tax collection office every two months. If the branch office has a turnover exceeding NOK5 million annually, the financial accounts must be audited by a certified auditor.

Poland

Poland

Conducting a business activity using the real estate located in Poland is considered as having a permanent establishment in Poland. Foreign businesses can set up branch offices or representative offices in order to carry out business activities in Poland.

Branch office

A branch must be registered in the Register of Businesses (Rejestr Przedsiębiorców), part of the National Court Register, and will take the name of the foreign investor followed by “branch in Poland”. Branch offices may only carry out activities within the scope of the foreign investor’s business. The minister responsible for the economy may prohibit activities by a branch in certain situations specified by law. A branch office does not have its own legal personality and the parent entity is responsible for any liability arising from its activities.

Representative office

A representative office operates for and on behalf of the foreign business in Poland. It can only engage in promotion or the supply of information and is therefore not suitable for investing in real estate. A representative office must be registered in the Register of Foreign Businesses' Representative Offices (Rejestr Przedstawicielstw Przedsiębiorców Zagranicznych).

No permits are required from the authorities to establish either a branch or a representative office, but in both cases registration and an entry in the appropriate register are obligatory.

The costs of setting up a permanent establishment depend on the size of the entity, its business activities, turnover and the number of employees. It takes from four to six weeks.

There is no requirement to set up any new governing bodies for a branch or representative office: they can be managed directly from abroad. However, a foreign business is obliged to nominate a representative.

Portugal

Portugal

Yes. Direct investment may be carried out in Portugal either through a permanent establishment (estabelecimento estável) or without a permanent establishment. Please note, however, that in most cases (but depending upon the investor's country of origin), the direct holding of real estate may be deemed to be a permanent establishment in Portugal.

The existence of a permanent establishment for tax purposes is a question of fact. The formal establishment of a branch costs approximately €1,000 and may take between two and three weeks.

Corporate governance requirements are limited to listed public limited companies and are not applicable to a permanent establishment. However, similar requirements can be implemented by companies by way of self-regulation and a best practice approach to business.

Romania

Romania

A direct investment in a real estate asset can be held by a private person or a corporate vehicle. Non Romanian entities may set up a branch or 'permanent establishment' in Romania for this purpose.

Branches are entities without legal personality (they are merely geographic extensions of the entity to which they belong). Branches must be registered with the Commercial Registry in the county where they will carry on business. The registration with the Commercial Registry will trigger costs of approximately 800 RON. Additional costs are likely to be incurred in filing, drafting and translating the necessary documents.

In theory, the incorporation process can take as little as a week, although in practice, assembling all the necessary documents, translating them, obtaining notarized and apostilled copies etc, can take several weeks. The registration certificate attesting the registration of the branch with the Commercial Registry should be issued within three days from the filing of the registration application, subject to compliance with the required documentation.

All legal and commercial operations related to the Branch’s activity must be carried out by a representative designated by the parent company (typically the branch manager), a specimen of whose signature must be filed with the Commercial Registry. As the branch manager is entitled to represent the branch and the branch is an integral part of its parent company, the manager will in fact be able to bind the parent company.

Russia

Russia

There are two methods of holding a direct investment in a real estate asset in Russia without setting up a Russian legal entity:

  • Investment without a permanent establishment. Investing in Russian real estate does not create a permanent establishment unless certain activity criteria are met. Therefore, the concept of "permanent establishment" does not apply per se when a foreign person invests in Russian real estate. The concept of permanent establishment applies exclusively to legal entities rather than natural persons
  • Investment with a permanent establishment (by creation of a branch, a representative office etc)

The costs of setting up a branch or a representative office include state stamp duties and accreditation fees. The stamp duty for the accreditation is RUB120,000.

There will also be other associated costs, for example for the translation of documents into Russian, apostille certificates (which are evidence of the legal validity of a document), legal costs, notary's fees etc.

The accreditation takes 25 working days from the point of filing the documents with the registration authority, which is located in Moscow. The number of foreign employees (if any) should be approved in advance by the Russian Federation's Chamber of Commerce and Industry. Thus it takes approximately two months to set up a branch or a representative office.

The head of the permanent establishment is required to act by virtue of a power of attorney issued by the head of the foreign company.

Slovak Republic

Slovak Republic

The concept of a permanent establishment does not apply to investment by foreign persons in real estate.

Nevertheless, the income from real estate investment by foreign persons is subject to taxation in Slovakia under the Slovak Income Tax Act and under relevant double taxation treaties.

Spain

Spain

There are various ways to carry out investment in real estate in Spain:

  • By means of direct investment with or without a permanent establishment (establecimiento permanente). Investment through a permanent establishment which will be deemed to exist if the following characteristics apply:
    • A place of business is brought into existence in Spain
    • The business is ongoing, and
    • The business will be used to carry out the activities of the investor
  • By means of incorporation of one of the Spanish corporate vehicles discussed under this topic
  • By means of establishing a branch of a foreign company in Spain

It is difficult to specify how much it costs to set a Spanish corporate vehicle. However, pursuant to the recent amendment of the Spanish Corporate Law, a “Single Access Point” has been created for the purposes of incorporating limited liability companies. Now all necessary incorporation procedures, including the effective commencement of the company’s economic activities can be dealt with through this single access point.

The procedure is channeled through a Single Electronic Document (DUE) in which all the relevant information on the new company must be included in accordance with the applicable law.

The DUE enables the founding shareholders of a limited liability company to choose between incorporating the company using (i) standardized by-laws; or (ii) tailored by-laws.

If the founding shareholders opt for standardized by-laws, the process involves the following steps:

  • Filling out the DUE
  • Attaching of the standardized by-laws
  • Having the DUE electronically processed
    1. Booking an appointment with the notary, which must take place within 12 hours from application
    2. Obtaining the company’s corporate name from the Commercial Registry, which must be provided within two days of the filing of the application form
  • At the notary’s

    1. On the designated date, the notary will execute the public deed of incorporation, once evidence of the payment of the minimum share capital is provided
    2. Electronic filing of the public deed of incorporation with the Commercial Register and tax authorities (for the purposes of applying for a tax ID number)
    3. Delivery of a copy of the public deed of incorporation to the founding shareholders

As a consequence, the registration of a company not using standardized by-laws requires a two-stage process: a preliminary registration, in which the incorporation date is booked; and a second registration, which is effectively an amendment to the first registration to include the tailored by-laws.

Non-residents operating in Spain through a permanent establishment are generally required to keep accounting records in Spain in accordance with the rules and regulations established for Spanish companies. Non-residents receiving income in Spain through a permanent establishment are required to appoint a Spanish resident as their tax representative. Costs may amount on average to around €6,000 per annum. The annual accounts of the foreign parent company must be filed annually with the Mercantile Registry for the area in which the branch is registered.

Foreign investments in real estate must be reported to the Investment Registry of the Spanish Ministry for the Economy and Competitiveness (Registro de Inversiones del Ministerio de Economía y Competitividad) but only if the investment is valued at more than €3,005,060.52 or if the funds come from a tax haven.

Sweden

Sweden

This concept is not applicable.

Thailand

Thailand

Investment in real estate in Thailand by a foreign person does not constitute a permanent establishment ('PE') unless the real estate is used as a fixed place of business through which the foreign person operates its business wholly or partly in Thailand. However, income derived from the real estate eg rent or capital gain is subject to tax in Thailand regardless of whether the foreign person has a PE in Thailand or not.

There are various types of PE recognized by the Thai tax authority and, from a tax perspective, the PE may or may not have to be registered with the Ministry of Commerce.

A type of PE that would need to be registered with the Ministry of Commerce is a branch office of foreign company. The cost and time involved in setting up a branch depends on the size and complexity of the business which the branch will be carrying in Thailand.

Other types of PE, including branch offices, may be required to apply for a foreign business permit depending on business activities to be carried on in Thailand.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Yes. The cost depends on the type of permanent establishment being set up. The decision as to what type of corporate vehicle to use for holding a real estate asset in Dubai will be determined largely by the nationality of the shareholders.

Real estate which is not designated for foreign ownership can only be owned by GCC nationals (ie nationals of the United Arab Emirates, Qatar, Kuwait, Oman, the Kingdom of Saudi Arabia and Bahrain), companies wholly owned by them or public joint-stock companies (PJSC). 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 Dubai Economic Department.

Foreigners (ie nationals of countries other than those forming the GCC) can use an LLC, a PJSC or a Private JSC where the real estate is in a designated 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). If the asset is to be wholly owned by foreigners (and therefore in a designated area), a Dubai land Department (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.

On 30 October 2018 UAE Foreign Direct Investment Law (FDI Law) was issued, pursuant to which higher levels of foreign ownership will be permitted in certain sectors of the economy if such sectors do not appear on the negative list. The sectors of the economy currently listed in the negative list include petroleum-related exploration and production, banking and finance, road and air transport and recruitment.

The FDI Law refers to a positive list of sectors of the economy in which higher levels of foreign ownership will be permitted. However, details of sectors in the positive list are not mentioned in the FDI Law, but the expectation is that it will include manufacturing and service industries. The FDI Law authorises the UAE Cabinet to provide details of the sector of the economy to be added to the positive list.

There are also a number of 'free zones' in the UAE. 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 Dubai usually takes six to eight weeks to become operational from the date that the required documents are received in Dubai 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.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

Yes. The cost depends on the type of permanent establishment being set up. The decision as to what type of corporate vehicle to use for holding a real estate asset in Dubai will be determined largely by the nationality of the shareholders.

Real estate which is not designated for foreign ownership can only be owned by GCC nationals (ie nationals of the United Arab Emirates, Qatar, Kuwait, Oman, the Kingdom of Saudi Arabia and Bahrain), companies wholly owned by them or public joint-stock companies (PJSC). 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 Dubai Economic Department.

Foreigners (ie nationals of countries other than those forming the GCC) can use an LLC, a PJSC or a Private JSC where the real estate is in a designated 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). If the asset is to be wholly owned by foreigners (and therefore in a designated area), a Dubai land Department (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.

On 30 October 2018 UAE Foreign Direct Investment Law (FDI Law) was issued, pursuant to which higher levels of foreign ownership will be permitted in certain sectors of the economy if such sectors do not appear on the negative list. The sectors of the economy currently listed in the negative list include petroleum-related exploration and production, banking and finance, road and air transport and recruitment.

The FDI Law refers to a positive list of sectors of the economy in which higher levels of foreign ownership will be permitted. However, details of sectors in the positive list are not mentioned in the FDI Law, but the expectation is that it will include manufacturing and service industries. The FDI Law authorises the UAE Cabinet to provide details of the sector of the economy to be added to the positive list.

There are also a number of 'free zones' in the UAE. 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 Dubai usually takes six to eight weeks to become operational from the date that the required documents are received in Dubai 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.

UK - England and Wales UK - England and Wales

UK - England and Wales

The term permanent establishment is not a generically used term in the UK (of which England and Wales form a part), other than for double-tax treaty purposes where the concept is relevant to the tax rights of the state in which a permanent establishment has been created. Generally, for tax reasons, investors who are not resident in the UK would seek to avoid creating a permanent establishment in the UK. The use of a UK limited partnership for inward property investment is not normally seen as the creation of a permanent establishment for UK tax purposes. Generally, a UK company is not a tax-efficient vehicle for non-UK real estate investors since it is not tax transparent. One notable exception is the UK Real Estate Investment Trust, which is a company listed on the London Stock Exchange.

The basic cost of setting up a limited partnership is often minimal. There are, however, additional costs such as taking legal and tax advice on whether this is an appropriate vehicle and structure and substantial costs will be incurred in drafting and negotiating (where necessary) a suitable constitution for the investment vehicle which regulates the rights and obligations of the investors and as between the investors and the sponsor or investment manager.

A UK limited partnership can be established simply by lodging the relevant details with the UK Companies Registry. However, the establishment of an investment vehicle with negotiated terms which will be suited to investors and the raising of funding from investors for that investment fund may take considerable time and the relationship and rights and obligations between the partners is usually governed by a limited partnership agreement.

Where a permanent establishment takes the form of a UK incorporated company, UK company law applies. This provides a comprehensive code governing the rights and obligations of the company itself, its directors and shareholders.

Where a limited liability partnership (LLP) is used, this will be governed largely by the members' agreement, which regulates the rights and obligations of the LLP itself (which is a corporate entity) and its members. The LLP will often be managed by a management committee of members who report to the membership at large. Although it is a corporate entity, an LLP does not have a share capital and is generally tax transparent for UK tax purposes. Many aspects of company law apply to an LLP with certain modifications, including rules on insolvency and measures for the protection of creditors.

Certain aspects of company law relating to registration and accounts apply to non-UK incorporated companies with branches in the UK.

The Financial Services and Markets Act 2000 (FSMA) applies to all regulated activities carried on in the UK and can apply to a UK incorporated company, an LLP and a company incorporated outside the UK with a UK branch. Regulated activities include so far as relevant to inward UK property investment:

  • setting up and operating investment funds
  • arranging deals in investment funds and other FSMA regulated investments
  • the provision of investment advice

the provision of discretionary investment management services. Though direct real estate investment is generally not governed by FSMA, where property is owned through any kind of corporate or collective investment scheme vehicle, there will be FSMA implications and specialist advice should be taken.

UK - Scotland

UK - Scotland

The term permanent establishment is not a generally used term in the UK (of which Scotland forms a part), other than for double-tax treaty purposes where the concept is relevant to the tax rights of the state in which a permanent establishment has been created. Generally, for tax reasons, investors who are not resident in the UK would seek to avoid creating a permanent establishment in the UK. The use of a UK limited partnership for inward property investment is not normally seen as the creation of a permanent establishment for UK tax purposes. Generally, a UK company is not a tax-efficient vehicle for non-UK real estate investors since it is not tax transparent. One notable exception is the UK Real Estate Investment Trust, which is a company listed on the London Stock Exchange.

The basic cost of setting up a limited partnership is often minimal. There are, however, additional costs such as taking legal and tax advice on whether this is an appropriate vehicle and structure and substantial costs will be incurred in drafting and negotiating (where necessary) a suitable constitution for the investment vehicle which regulates the rights and obligations of the investors and as between the investors and the sponsor or investment manager.

A UK limited partnership can be established simply by lodging the relevant details with the UK Companies Registry. However, the establishment of an investment vehicle with negotiated terms which will be suited to investors and the raising of funding from investors for that investment fund may take considerable time and the relationship and rights and obligations between the partners is usually governed by a limited partnership agreement. Where a permanent establishment takes the form of a UK-incorporated company, UK company law applies. This provides a comprehensive code governing the rights and obligations of the company itself, its directors and shareholders.

Where a limited liability partnership (LLP) is used, this will be governed largely by the members’ agreement, which regulates the rights and obligations of the LLP itself (which is a corporate entity) and its members. The LLP will often be managed by a management committee of members who report to the membership at large. Although it is a corporate entity, an LLP does not have a share capital. Many aspects of company law apply to an LLP with certain modifications, including rules on insolvency and measures for the protection of creditors.

Certain aspects of company law relating to registration and accounts apply to non-UK-incorporated companies with branches in the UK.

The Financial Services and Markets Act 2000 (FSMA) applies to all regulated activities carried on in or from the UK and can apply to a UK-incorporated company, an LLP and a company incorporated outside the UK with a UK branch. Regulated activities include so far as relevant to inward UK property investment:

  • Setting up and operating investment funds
  • Arranging deals in investment funds and other FSMA regulated investments
  • The provision of investment advice
  • The provision of discretionary investment management services

Though direct real estate investment is generally not governed by FSMA, where property is owned through any kind of corporate or collective investment scheme vehicle, there will be FSMA implications and specialist advice should be taken.

Ukraine

Ukraine

The applicable legislation does not lay down direct requirements for the registration of a permanent establishment for the purposes of investing in real estate situated in Ukraine.

However, the Ukrainian tax authorities have expressed the opinion that the ownership of Ukrainian real estate may be considered to constitute a permanent location of activity in Ukraine (ie a permanent establishment) subject to mandatory registration with the tax authorities. This position is arguable as mere ownership as such does not lead to permanent establishment in absence of commercial activities, or personnel acting on behalf of the foreign company etc. Moreover, there is a separate requirement for non-resident investors (foreign companies) to register with the Ukrainian tax authorities after acquiring a real estate asset which is subject to taxation in Ukraine.

A permanent establishment of a non-resident may be registered as a representative office in Ukraine. The representative office of a foreign entity is subject to registration with the Ukrainian Ministry of the Economy, the State Department of Statistics, the local tax authorities and the state pension fund. Employment records for all the employees of a permanent establishment must also be kept with the General Directorate for Servicing International Representative Offices.

The Ukrainian Ministry of the Economy will issue a registration certificate for the representative office within 60 working days following the payment of the state duty and the submission of all required documents. The registration of a representative office with the State Department of Statistics, local tax authorities and the state pension fund takes about three weeks.

The registration of a representative office with the Ukrainian Ministry of the Economy incurs a state duty of US$2,500. Additional expenses (notary's fees, etc) may also be payable.

Under Ukrainian law, a representative office is not a legal entity and operates on behalf of the foreign corporate investor. Ukrainian law does not, therefore, regulate the corporate governance of representative office. The foreign company must, however, appoint the head of the representative office and grant him a power of attorney.

The existence of a permanent establishment once an investment in Ukrainian real estate has been made and the necessity to register a representative office should be reviewed in each particular case depending on the purpose for which the real estate is to be used.

As a rule, specifically in relation to investment in plots of land, foreign investors use a multi-step structure involving the incorporation of a joint venture company in an offshore jurisdiction, which then owns a Ukrainian company, which, in turn, owns another company which holds the real estate located in Ukraine.

United States

United States

A foreign investor may purchase a direct interest in a real estate asset, or the foreign investor may establish a legal entity which will hold title to the real estate asset. The concept of a permanent establishment involves the setting up of a legal entity discussed elsewhere in this section.

Zimbabwe

Zimbabwe

The concept of a ‘permanent establishment’ is applied in Zimbabwe under the realm of international law and is not commonly used. It applies in the context of the OECD Model Tax Convention where double-tax agreements exist between member states’ tax rights where the permanent establishment is deemed to have been created in the resident state. It is not strictly necessary for foreign-based investors to establish a permanent establishment in order to invest in real estate in Zimbabwe.

A branch of a foreign company will be considered a permanent establishment for the purposes of investment. Approval from the Ministry of Justice, Legal and Parliamentary Affairs is required before a branch can be established. The application to the Ministry must be accompanied by details of the foreign company’s incorporation documents, as well as details of the directors or principal officer who will be the representatives of the company in Zimbabwe. The statutory costs for establishment of a branch are US$520, and the process takes approximately one month. Once approval has been granted, the Registrar of Companies will issue a branch registration certificate.

The other form of entity regarded as a permanent establishment is the representative/liaison office. The registration requirements, timelines and costs of registration of a representative office are similar to that of the branch of a foreign company outlined above.

Aspects of corporate governance in relation to Zimbabwean company law also apply to foreign branches or representative offices and duties of its members/directors or representatives and accounting of financial records.