Yes, but only where the real estate asset is located in one of the investment areas of Abu Dhabi. In these areas non-UAE nationals can hold the following land interests:
The Abu Dhabi Executive Council is permitted to designate certain individuals, companies and parties as having the same status as UAE nationals regarding land ownership in the Emirate. This has been done to date for two real estate development companies listed in Abu Dhabi Aldar Properties PJSC and Sorouh Properties PJSC, the two of which have since merged to form one company (being Aldar Properties PJSC). This designation enables these companies to own land interests throughout Abu Dhabi despite them having an element of foreign ownership.
In the Abu Dhabi Global Market financial free zone, only GCC citizens and companies wholly owned by them may hold a freehold interest in land. There are no such restrictions on buying other freehold interests in real estate, such as units and floors.
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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.
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There are various types of company that can be used to hold real estate assets in Abu Dhabi. For a foreign investor, there are limits on the percentage of shares that one can own in companies incorporated in the UAE and any foreign shareholding (ie by a national other than those from the United Arab Emirates, Qatar, Kuwait, Bahrain, Oman and the Kingdom of Saudi Arabia) will mean that the real estate asset must usually be in an area designated for foreign investment. The most relevant types of corporate vehicle are limited liability companies, public joint-stock companies, and private joint-stock companies.
In the Abu Dhabi Global Market free zone, only two types of company can be established – private (with limited or unlimited liability) or public – although private companies can apply to the Registration Authority to become "investment companies", “restricted scope companies” or “cell companies”.
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Limited liability company (LLC)
This is a company in which the shareholders are limited in their liability to the amount of their contribution to the share capital. An LLC must have between two and fifty shareholders and UAE nationals (or a company owned by UAE nationals) must currently own at least 51% of the shares. Despite the foregoing rule, one national or body corporate from a GCC country may own the entire shareholding of an LLC without the participation of another shareholder.
Public joint-stock company (PJSC)
A PJSC is a company whose capital is divided into negotiable shares of equal value. The nominal value of each share cannot be less than AED 1 and cannot exceed AED 100. Shareholders are liable only to the value of their shares.
UAE nationals must own at least 51% of the shares in the PJSC and the founding members must subscribe to shares from 30% to 70% of the issued share capital. A PJSC must have at least five founder members.
Private joint-stock company (private JSC)
A private JSC is similar to a PJSC but with the following main differences:
The UAE Companies Law (No. 2 of 2015 as amended) provides that, unless specifically provided to the contrary all provisions that apply to a PJSC apply to a private JSC as well, other than the points noted above.
In the Abu Dhabi Global Market free zone:
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Limited liability company (LLC)
The UAE Companies Law does not prescribe any minimum share capital for an LLC. The LLC is required to have adequate share capital to achieve the purpose of its incorporation. Therefore, the adequate capital required for an LLC can be decided by its shareholders. There is no guidance issued to indicate the level of adequacy and neither is there any decision on the minimum share capital. The shares should be comprised of equal shares. In practice a notary public would usually accept a minimum share capital for an LLC in Abu Dhabi of AED 150,000 divided into equal shares, each with a minimum value of AED 1,000. Public subscription for shares is not permitted and the share capital must be paid up in full.
Although the UAE Companies Law provides that the shares in cash shall be deposited in a UAE registered bank, presently, there is no requirement to provide evidence of the deposit of the share capital in the bank. Details of its share capital will be included in the LLC's memorandum of association which will need to be notarised by the UAE notary public as part of the incorporation process.
Public joint-stock company (PJSC)
The minimum limit of the issued capital of a PJSC is AED 30 million. This increases in the case of banks and insurance companies.
Given the substantial capital requirement, and the fairly restrictive rules of establishment and management, it is often not a suitable corporate vehicle for overseas investors wishing to establish a vehicle for investment purposes.
Private joint-stock company (private JSC)
The minimum share capital required is AED 5 million.
In the Abu Dhabi Global Market free zone, a public company’s minimum required allotted share capital is USD 50,000. Private companies do not have a minimum capital requirement.
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Limited liability company (LLC)
Legal costs to establish an LLC can be in the region of USD 20–30,000 (excluding VAT and disbursements).
There is no requirement to deposit the share capital of an LLC in a UAE registered bank and therefore it is not necessary to provide evidence of the deposit of the share capital in the bank.
An LLC must take a lease of premises from which to conduct its business (which are inspected and must be approved by various government entities). A fee of around 5% of the annual rent of the office space and the annual rent of the general manager's home is usually charged as a fee payable to the Municipality and is included as part of the trade licence fee.
The rent itself can be considered a set up cost and there are fixed fees for each employee of the company. Additionally, there are ancillary fees which include approval of the trade name, a general application fee and the cost associated with notarising the memorandum of association before a UAE notary public.
Public joint-stock company (PJSC)
In addition to the share capital, the other typical costs can vary widely.
The costs will include professional fees for preparing the founders' agreement, a prospectus or invitation for public subscription supported by a feasibility/business plan, auditors' certificate, due diligence report and memorandum and articles of association. The memorandum and articles of association must be in accordance with the specimen issued by the Ministry of Economy and Commerce and any deviation from this must be approved by the same Ministry.
The PJSC must have offices and therefore there will be rental costs and other costs ancillary to this.
The PJSC must register with the DED to obtain its trade licence and the Emirates Securities and Commodities Authority (ESCA) to obtain its certificate of registration. The fees to be paid to the DED are related to rent payable for the office space and ESCA has certain annual fees which need to be paid as well.
There are also fees relating to the cost of being listed on a particular stock exchange.
Private joint-stock company (private JSC)
In addition to the share capital, the other typical costs can vary widely.
The costs will include professional fees for preparing the founders' agreement and memorandum and articles of association. In addition, the application to set up a private JSC needs to include a business plan and feasibility study.
The memorandum and articles of association must be in accordance with the specimen issued by the Ministry of Economy and Commerce and any deviation from this must be approved by the Ministry of Economy and Commerce.
The private JSC must have offices and therefore there will be rental costs and other costs ancillary to this.
The private JSC must also register with the DED to obtain its trade licence and the Ministry of Economy to obtain its certificate of registration. The fees to be paid to the DED are related to rent payable for the office space.
Costs associated with setting up an entity in the Abu Dhabi Global Market free zone include rent, legal fees for preparing constitutional documents and fees payable to the free zone.
A schedule of fees can be found at the following link: https://www.adgm.com/documents/project/adgm/operating-in-adgm/ongoing-obligation/real-property/schedule-of-fees-v0-29.pdf
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Limited liability company (LLC)
An LLC becomes operational once a trade licence is issued by the Abu Dhabi Economic Department (DED). If all relevant documentation has been properly prepared and submitted, this should take around six to eight weeks where one or more of the shareholders is a non-Gulf Co-operation Council (GCC) national (ie a national of a UAE, Qatar, Kuwait, Oman, The Kingdom of Saudi Arabia and Bahrain). If all the shareholders are UAE or GCC nationals the process is likely to be quicker.
Public joint-stock company (PJSC)
The process of setting up a PJSC is fairly involved and requires a number of approvals to be obtained. To obtain all the required approvals before shares can be offered for subscription would take at least 15 weeks. Following this period the initial public offering for subscription for shares should be kept open for between 10 days and 90 days and this is subject to further extension.
Private joint-stock company (private JSC)
In order to set up a private JSC an application has to be made to the DED and the Ministry of Economy and this application has to be supported by a business plan and feasibility study. These documents are studied and once any recommended changes have been made the setting up process can proceed. The entire process from submission of the application to the grant of a licence usually takes at least 15 weeks
The process for establishing is intended to be straightforward and transparent and begins with the submission of an application form (online or in paper form) to the Registration Authority for evaluation. If the Registration Authority approves the application, the applicant can apply to reserve a company name in accordance with the detailed requirements of the Business and Company Names Rules 2016. Registration/incorporation forms can then be submitted through the online portal. The Abu Dhabi Global Market financial free zone intends that the registration process will be completed within one to three business days when the entity's commercial permit and certificate will be issued.
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Limited liability company (LLC)
An LLC must:
The shareholders of the LLC can choose whether to have a board of managers or not.
Public joint-stock company (PJSC)
There are greater corporate governance requirements, as one would expect, with a PJSC compared to an LLC. Since a PJSC is required to be listed it has to comply with the governance requirements of the relevant stock exchange. These include various disclosure requirements to be met and the publication of accounts and other statements. Emirates Securities and Commodities Authority (ESCA) has also issued a corporate governance code, adherence to which is mandatory for PJSCs.
Additionally, if new shares are offered, the existing shareholders have a pre-emption right before they are offered to the public (except when shares are being issued to "strategic investors" outside of the pre-emption regime).
Private joint-stock company (private JSC)
A private JSC must have a board of directors consisting of between three and 12 directors and each director's term is no more than three years (subject to re-election). From the directors, there must be a chairman and such chairman must usually be a UAE national.
The corporate governance requirements for a private JSC are less strict than a PJSC. Since private JSCs are not listed entities they are not bound by the same disclosure requirements as PJSCs, unless the private JSC voluntarily chooses to adhere to the corporate governance code which is mandatory for PJSCs.
There is no concept of a general manager, but a private company must have at least one director. The directors will be responsible for management and can bind the company individually as against third parties
Directors of companies in Abu Dhabi Global Market free zone are subject to increased and more detailed fiduciary duties (particularly around conflicts of interest and acceptance of benefits from third parties) compared to on-shore companies. Companies are also subject to increased administration, company secretarial compliance requirements and filings must be made with the Abu Dhabi Global Market Registrar.
A comparatively high level of information will be publicly available through Abu Dhabi Global Market (including annual accounts and names of directors).
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The major accounting firms maintain a considerable presence in the UAE and are employed by many companies in relation to corporate/accounting compliance. Compliance costs vary considerably and are commensurate with the needs of each individual company.
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Most of the individual Emirates have issued income tax decrees. While these decrees are in principle applicable to all (respective) entities, in practice corporate tax is currently only enforced against oil and gas companies, including certain petrochemical companies, and in certain Emirates, branches of foreign banks. The enforcement practice may change at any time and corporate tax could be enforced, potentially even retroactively, on a larger population of corporate entities. Companies established in one of the Emirate level instated Free Zones could enjoy a temporary exemption from corporate tax, granted by the relevant Free Zone Authority.
There are some municipality taxes paid on rent and certain land transfer charges paid when transferring real estate.
On 1 January 2018 the UAE introduced VAT. The standard rate of VAT is 5% whereas some supplies are exempt (eg the supply of bare land) or zero rated (eg first supply of residential property within three years of completion). In principle, VAT applies on the domestic supply of goods (eg sale of commercial real estate) and services (eg lease) as well as on the import of such goods and services.
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What are the main features of the constitution of each type of corporate vehicle used to invest in real estate?
Limited liability company (LLC)
This is a company in which the shareholders are limited in their liability to the amount of their contribution to the share capital. An LLC must have between two and fifty shareholders and UAE nationals (or a company owned by UAE nationals) must currently own at least 51% of the shares. Despite the foregoing rule, one national or body corporate from a GCC country may own the entire shareholding of an LLC without the participation of another shareholder.
Public joint-stock company (PJSC)
A PJSC is a company whose capital is divided into negotiable shares of equal value. The nominal value of each share cannot be less than AED 1 and cannot exceed AED 100. Shareholders are liable only to the value of their shares.
UAE nationals must own at least 51% of the shares in the PJSC and the founding members must subscribe to shares from 30% to 70% of the issued share capital. A PJSC must have at least five founder members.
Private joint-stock company (private JSC)
A private JSC is similar to a PJSC but with the following main differences:
The UAE Companies Law (No. 2 of 2015 as amended) provides that, unless specifically provided to the contrary all provisions that apply to a PJSC apply to a private JSC as well, other than the points noted above.
In the Abu Dhabi Global Market free zone:
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