UAE foundation – the ultimate structure for UAE real estate

Understanding the best way to hold real estate in the UAE involves comparing different legal structures. This article from Leevyn Isabel, Commercial Director, and Nina Auchoybur, Managing Director – UAE, breaks down the benefits of a UAE foundation versus owning property as an individual, through a company, or within a trust. 

They examine how foundations can better protect your assets, ensure smooth succession, offer tax advantages, and bypass probate. Additionally, they explore when other ownership options might be more appropriate and how to choose the right structure for your situation. 

UAE foundation vs. individual ownership

Asset protection

Individual ownership creates significant vulnerability for personal assets. Real estate and other holdings are directly subject to the claims of creditors, the complexities of legal challenges, and the potential for family disputes, offering minimal asset protection. 

Succession planning

Individual ownership does not provide the same level of succession planning as a foundation, which can ensure assets are passed on according to the founder's wishes, regardless of inheritance laws. While an individual can have a will in place for succession planning; a will only become effective upon death and may be subject to lengthy probate procedure involving the courts. 

Tax efficiency

Individual owners may face more tax liabilities compared to the potential tax benefits of a properly structured foundation.  Such tax liabilities may occur upon relocation outside of the UAE, when the individual owners cease to be tax residents of the UAE. 

Probate

Assets held in an individual's name are subject to probate, while those held in a foundation are not. 

Please refer to our article about the specific advantages of UAE foundations.

UAE foundation vs. companies

Asset protection

Real estate assets held within a foundation are legally owned by the foundation itself, providing a greater degree of separation from the founder's personal liabilities and making them less accessible to creditors. Without a foundation structure, the shares of a company holding real estate are typically held directly by individuals, exposing these shares, and consequently the underlying real estate assets, to creditors.

Asset consolidation

Companies typically consolidate assets for operational efficiency and profit generation, while foundations focus on preserving and managing assets for a specific purpose or beneficiary.

Legacy planning

Unlike companies, which prioritise business operations and profit with limited legacy planning mechanisms, foundations are specifically designed for intergenerational wealth transfer, including strategic decisions about which real estate assets to retain for the family and which to dispose of.

Tax efficiency

When structured correctly, UAE foundations can offer fiscal transparency, shifting tax liability to the beneficiaries. This can create a tax-efficient structure, particularly for income from real estate rentals and investments, which would otherwise be taxable at the company level.

Orphan structure

Unlike companies that have shareholders, foundations are ‘orphan’ structures without shareholders, enabling seamless transfer of real estate assets across generations and reducing the applicable transfer fees payable to the land departments. 

UAE foundation vs. trusts

Legal entity

A key distinction between foundations and trusts lies in their legal nature.  A foundation, like a company, possesses its own legal identity.  A trust, conversely, is a legal obligation or relationship between the settlor, trustee, and beneficiary. This distinct legal personality of foundations facilitates their registration and acceptance by UAE land departments.

Recognition by UAE land departments

UAE foundations offer a significant practical advantage over overseas trusts and foundations: they are recognised by land departments throughout the Emirates. This recognition simplifies real estate transactions and makes them a preferred structure for holding local property.

Asset transfer

Foundations offer greater flexibility than trusts regarding asset transfer. While trusts generally require an immediate transfer of assets to the trustee to be valid, foundations do not impose this requirement.

Control and ownership

A trustee in a trust both holds and controls the assets.  In contrast, a foundation separates these roles: the foundation owns the assets, while a council governs their use.

Please refer to our article for a detailed analysis of foundation vs trust. 

Alternative ownership structures

Simple structures

For very simple real estate holdings, such as a single property with a mortgage and a will in place, individual ownership may be sufficient.  This is especially true when the property's value is relatively low, making the cost of establishing and maintaining a foundation disproportionate to the benefits.

Specific tax planning

If the main goal is to minimise taxes vis-à-vis another jurisdiction, a company or individual ownership may be used for UAE real estate, but each has their drawbacks and must be carefully considered 

Specific needs

Depending on the family's unique circumstances, a combination of structures may be used. 

How can Ocorian help?

Navigating the complex tax landscape for UAE foundations requires a deep understanding of transparency rules, beneficiary tax implications, VAT liabilities and the evolving substance requirements.

Ocorian's UAE domestic and global teams are committed to strategically assessing existing structures, aligning with international tax standards, fortifying economic substance and enhancing corporate governance best practices.

For more information contact our private client team today.