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?
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:
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.
In Argentina, non-residents may be considered a Permanent Establishment (PE) in Argentina if the conditions set forth in the tax law or an international tax treaty are met. Conditions typically refer to a fixed place of business in Argentina. A difference, but often associated with the concept of PE, is when foreign investors have to get a Certificate of Foreign Investment (Certificado de Inversión Extranjera or CIE) issued by the Argentine Central Bank to invest in certain sectors or to repatriate profits.
The concept of PE is used in international tax law to determine the taxable presence of a foreign person or entity, in this case in Argentina, where it will be involved in developing or conducting business activities. Setting up a permanent establishment generally involves legal and administrative procedures, such as registering with local authorities, obtaining the necessary licenses and permits, and complying with corporate governance requirements, such as maintaining proper accounting records, filing tax returns, and fulfilling reporting obligations. These requirements also include appointing local directors, preparing financial statements, and adhering to local corporate governance standards. Registering a PE may be required for branches.
Bear in mind that the estimated costs and time for the incorporation and registration in Argentina of a PE, could amount to around USD1,500.
'Permanent establishment' is a taxation concept in Australia and not a corporate vehicle as such.
Whether real estate in Belgium held by a foreign company constitutes a permanent establishment (vaste inrichting/établissement stable) or not is a pure tax question. In addition, the foreign investor can decide to set up a branch (bijkantoor/succursale”) in Belgium through which the real property will be held. The costs of setting up a branch amount to approximately €2,500. Recurring costs relating to corporate and accounting compliance include accounting fees for non-corporate tax and (possibly) VAT compliance purposes. These annual costs amount to approximately €20,000.
A branch must be registered in Belgium. For the opening of a branch office in Belgium, the file of the foreign company must be filed with the competent Belgian Enterprise Court. This file must, amongst other things, include the deed of incorporation, the articles of association and the most recently closed annual accounts of the financial year of the foreign company. The legal representative(s) of the branch must also be registered. It takes about 10 days for the registration of the branch to be completed.
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.
There is no concept of “permanent establishment” in Brazilian law. Pursuant to article 1.134 of the Brazilian Civil Code, a foreign company may not operate in Brazil without prior authorization from the executive power, however, a foreign person may be a shareholder of a Brazilian corporation.
To obtain executive authorization for a foreign company to operate in Brazil, it is necessary to submit an application form together with the following documents:
All documents must be authenticated, in accordance with the company’s national legislation and legalized at the Brazilian consulate of the company’s headquarters and accompanied by a translation. The Brazilian executive power may also establish further conditions, at its sole discretion, as convenient for the protection of national interests. The application must be submitted online by the company’s legal representative on the Brazilian Federal Government’s official website.
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.
Yes, the concept of 'permanent establishment' applies.
For non-self use, a foreign invested enterprise (FIE) must be set up for the proposed investment project. The establishment of a FIE requires the reporting to the Ministry of Commerce or its local counterpart (MOFCOM) and the registration with the State Administration of Market Regulation or its local counterpart (SAMR). In addition, a FIE will need to be registered with tax authority to establish tax status and to be registered with State Administration of Foreign Exchange (SAFE) to enable settlement into RMB of foreign funds for the proposed investment. The whole process takes around one to two months to complete and there are no costs involved other than nominal government registration fees. The corporate governance for a FIE needs to follow the corporate governance as set out in the Foreign Investment Law and the Company Law.
For self-use, FIEs and representative offices are permitted to purchase property for their own use in the city where such FIEs or representative offices are located.
Colombian legislation stipulates that a permanent establishment is incorporated when any of the following requirements are meet:
In that regard, an entity can settle a permanent establishment in Colombia if it conducts economic activities through a fixed place of business, such as a physical office or facility (ie real estate). However, simply owning real estate in Colombia without actively conducting business activities on the property does not give rise to a permanent establishment.
The costs of incorporating a permanent establishment vary according to the type of corporate vehicle and the amount of capital invested in it. In our experience, the incorporation of an entity could have an approximate cost of USD300. It’s important to note that these costs may vary depending on the type of investment made in Colombia and any other specific requirements applicable to each case.
The time required to incorporate a permanent establishment in Colombia could vary depending on when or what corporate vehicle the foreigner decides to set up. In that regard, below is an example of the time it regularly takes a foreign company to set up Colombian branches and/or Colombian companies:
| Colombian entities | Branches |
|---|---|
| Estimated incorporation time: one to two weeks (depending on the nature of the company). | Once the public deed of incorporation has been completed, the incorporation process will take between five and eight calendar days. |
From a tax perspective, there are no specific corporate governance requirements for a permanent establishment. It depends on the type of entity or vehicle used for its establishment.
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.
With the exception of the restrictions which have been imposed to the Russian Federation and several Russian individuals due to invasion of Russia to Ukraine, there is any other restriction in place in regard to acquisition of real estate by foreign individuals; any foreign national (except Russian citizens) shall be entitled to acquire real property. Therefore, there is no need to set up a permanent establishment in the Czech Republic. Only for reasons of expediency, such as communication with authorities, namely with the Cadastral Office, it is recommended appointing a representative for the process of acquisition who is entitled to act on behalf of the foreign individual. Appointing a representative, a local resident, might help to facilitate and speed up the process of the registration in the Cadastral Register.
The concept is not relevant.
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.
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 cost of setting up a registered permanent establishment starts at €1,500, including fees for registration in the commercial register and notary’s 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.
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.
A direct investment in a real estate can be made in Hungary either as:
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:
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.
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:
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.
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 in the range of EUR 2–3,000. The time required to set up and to make it operative is approximately 10–15 business days. No specific corporate governance requirements apply.
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 vehicle may take considerable time and the relationship and rights and obligations between the partners are 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.
From a legal perspective the concept of a permanent establishment does not automatically apply when a foreign person invests in real estate. It is possible for foreign legal entities to set up a permanent establishment by means of registering a branch office. Such branch office is not a separate legal entity.
However, from a Dutch corporate income tax perspective a foreign person investing in Dutch real estate is deemed to havea permanent establishment, irrespective of an actual registration of a branch office, therefore giving rise to Dutch corporate income tax liability,
Registration of a branch office costs €4,000 – €5,000 and it takes 10 days.
The branch office is not a separate legal entity and therefore the governing law of the foreign legal entity applies to the branch office in respect of all corporate legal matters (such as liability of the shareholders, charter documents, responsibility of directors and capital requirements), and if the foreign legal entity under its governing law is required to file annual accounts in its country of origin, then such annual accounts shall also be filed for the branch office with the Dutch Trade Register.
Permanent establishment is a taxation concept in New Zealand and not a corporate vehicle as such.
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 or where a foreign entity has dependent agents who habitually conduct business on their behalf in Nigeria. The rules are not applicable to direct foreign investment in real estate in Nigeria, as any foreign investment in real estate in Nigeria 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.
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 six to eight weeks from the date the Norwegian Register of Business Enterprises receives all relevant documents, however depending on the current workload of the Norwegian Register of Business Enterprises.
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 at or exceeding NOK6 million annually, balance sheet assets at or exceeding NOK23 million or average FTE exceeding 10 the financial accounts must be audited by a certified auditor. With effect from 1 May 2023, the turnover threshold is increased to NOK7 million annually and the threshold with respect to the balance sheet amount is increased to NOK 27 million.
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.
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.
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.
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 the direct holding of real estate may be deemed to be a permanent establishment in Portugal if the real estate qualifies as a fixed place of business through which an activity of a commercial, industrial or agricultural nature is carried out by the non-resident investor.
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.
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.
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.
There are various ways to carry out investment in real estate 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:
At the notary’s
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.
This concept is not applicable.
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.
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 Abu Dhabi will be determined largely by the nationality of the shareholders.
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).
On 30 October 2018 the UAE Government issued the UAE Federal Law No. 19 of 2018 on Foreign Direct Investment (FDI Law) which provides a regulatory framework that allows foreign shareholders to own up to 100% of UAE companies incorporated outside of the UAE's designated free zones (ie the onshore UAE companies) in certain sectors of the economy if such sectors do not appear in 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. The first positive list available for foreign investors with 100% ownership lists a total of 122 commercial activities, including 19 activities in the sector of agriculture, 51 in the manufacturing sector and 52 in the service sector. The list also details the minimum share capital and other requirements and conditions which need to be followed in order to apply for 100% foreign ownership. At the time of writing the positive list does not include any activities relating to owning real estate.
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.
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 1 June 2021, the UAE Commercial Companies Law was amended to allow foreign shareholders to own up to 100% of UAE companies incorporated outside of the UAE's designated free zones (ie the onshore UAE companies) in certain sectors of the economy if such sectors do not appear on a list of strategic activities. The sectors of the economy currently listed as strategic include (i) security, defence and military activities; (ii) banks, exchange houses and finance companies; (iii) insurance; (iv) currency printing; (v) communications; (vi) Haj and Omra services; (vii) Quran centres and (viii) fisheries.
Pursuant to this amendment, the respective licensing authority of each Emirate has been empowered to create its own list of activities that permit 100% foreign ownership. These list currently include the majority of activities available but there remain certain activities (other than strategic ones) which still limit foreign ownership to 49%. Furthermore, certain activities that are regulated by other competent authorities are still subject to foreign ownership limitations. Since the start of 2022, we have seen more activities added to the permitted list of each respective Emirate and anticipate further additions to be made.
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.
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 typically listed on a recognised 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:
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.
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 (Regulated Activities) Order 2001, derived from 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. Generally, an activity is a regulated activity if it is an activity of a specified kind that is carried on by way of business and relates to a specific investment or property of a certain kind. Insofar as they are relevant to inward UK property investment, such regulated activities may include:
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.
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 2,270 UAH. 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.
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.
It is not necessary for foreign-based investors to establish a permanent establishment in order to invest in real estate in Zimbabwe.
If a foreign investor wishes to form a permanent establishment, 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$1,400, 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.
