Offshore property loophole to close

Owners will no longer be able to avoid paying transfer fees.

DUBAI // Regulators have moved to close a loophole that allowed investors to buy and sell property without paying a transfer fee.

Owners are now barred from registering property in offshore companies other than those set up in the Jebel Ali Free Zone (Jafza).

Previously, they could set up offshore companies in tax havens such as the British Virgin Islands through which to purchase property that would then be exempt from tax in their home country and from local inheritance laws that favour male over female relatives.

Owners could also sell the property without notifying Dubai's Land Department by transferring ownership of the offshore company's shares.

The department has now reached an agreement with Jafza to track the land rights of companies registered in the free zone, and it will charge a two per cent fee for transfers of shares that are effectively property sales - the same rate charged for other property transactions.

"The procedure is intended in part to verify the Jafza-registered offshore companies' ownership, the buying and selling transactions and the owners of those companies," the Land Department said.

"The Land Department shall charge a fee of two per cent of the value of the real-estate share sold: one per cent on selling, and one per cent on buying," it said. The two per cent fee would apply no matter how small a portion of the property changed hands, it said.

The move may disappoint investors who want to transfer only a small percentage of shares. "There might be reasons other than selling property that people want to transfer shareholdings," said Alexis Waller, a property specialist and partner at the law firm Clyde & Co.

Some might want to add a family member to the company, or exit a business relationship and sell a minority shareholding, she said.