Introduction
Changing qualified recipients (the "QRs") of a Dubai International Financial Centre (the "DIFC") foundation that owns real estate in Dubai carries significant legal and financial implications. This is particularly regarding land transfer fees imposed by the Dubai Land Department (the "DLD"). Modifying the QRs can constitute a change in beneficial ownership. This may potentially trigger land transfer fees, even if the legal title to the property remains unchanged.
From a regulatory perspective, the DLD charges land transfer fees on changes in legal ownership of real estate, even when the ownership is indirect. However, it also applies these fees to changes in beneficial ownership without altering legal ownership. This means that adding, removing, or redistributing QRs within a DIFC foundation may result in land transfer fees. This depends on the relationship between the affected parties.
The Memorandum of Understanding between the DLD and DIFC (the "MOU"), established in 2017, ensures the proper assessment and collection of these fees whenever a foundation modifies its QRs. However, the full text of the MOU remains unavailable in the public domain.
This article explores the implications of QR changes within a DIFC foundation, the associated land transfer fees, and why these factors should be considered when structuring family wealth through a DIFC foundation.
Procedure for Changing QRs
Historically, the DLD has taken a cautious approach toward recognizing DIFC foundations as direct property owners. The department conducts thorough checks to determine the actual beneficial owners of properties.
Under the MOU, the DIFC Registrar of Companies (the "ROC") maintains a register of entities that qualify as freehold Dubai real estate owners (the "Eligible Entities"). This system enables the tracking of any future changes in beneficiaries. It triggers the payment of fees to the DLD.
Foundations that own real estate in Dubai must comply with the following MOU requirements:
- Submit quarterly confirmations to the ROC detailing the foundation's current QRs.
- Notify the ROC whenever a transfer of beneficial interest occurs in a DIFC foundation that owns Dubai real estate.
- Ensure the correct assessment and payment of all land transfer fees before finalizing any QR modifications.
Before finalizing any QR changes, the ROC must issue a No-Objection Certificate (the "NOC") to the DLD. This NOC serves as official confirmation that:
- The foundation has complied with the required notifications.
- The DLD may proceed with assessing and collecting applicable land transfer fees.
After the land transfer fees are paid, the DLD issues an NOC to the ROC. Only upon receiving this approval can the ROC officially recognize the change in QRs.
Authorities are currently developing a framework to enforce the prohibition on indirect transfers. Non-compliant Eligible Entities that own Dubai real estate may face penalties. These include fines, restrictions on purchasing additional Dubai real estate, and suspension of their commercial licenses.
Land Transfer Fees
Setting up a DIFC foundation to own real estate in Dubai provides several key benefits:
- Transfers of real estate between first-degree relatives.
- Changes to the ownership structure of the real estate where ultimate beneficial ownership remains unchanged.
Each specific case demonstrated above requires analysis and verification with the DLD of the applicable land transfer fees. Still, the specific amount of the land transfer fees would be determined by the DLD on a case-by-case basis.
In contrast, DLD does not permit foundations registered in other Emirates to own real estate in Dubai.
The land transfer fees range from 0.125% to 4% of the value of the interest being transferred when a DIFC foundation changes its QRs.
For more details on calculating land transfer fees when modifying QRs in a DIFC foundation, please refer to additional resources.
Originally published March 17, 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
