What Experts Don't Tell You About Dubai Real Estate Taxes and Legal Strategy

As Americans, we have two things that we're sure of: death and taxes. We're finding out that ultra-high-net-worth individuals are moving to Dubai at record numbers. Just two days ago, the minister of economy has firmly declined any rumors about income tax coming in. The developers for off-plan pay broker commissions, but you get a hidden commission. They tell you no commission, there's a hidden commission. Hi, I'm GG Benitez, a certified international property specialist and a licensed realtor connecting global real estate investors with the dynamic real estate market here in Dubai. So welcome to The Dubai Connect. Today I have with us a prominent figure in international tax. As Americans, we have two things that we're sure of: death and taxes. So Nadia, did I say that correctly? Al Al. I need to practice my Arabic. I am honored to have you on for a variety of reasons. Number one, you're a strong woman that's trailblazing an industry that's typically dominated by men. Yes. Number two, you're a local Emirati woman that I get to have on, and that makes me proud. And you're a woman expert in an area which is not easy to find people that can answer these questions. Because now that I'm bringing these North American investors to Dubai, as Americans, we are one of two countries in the world that have to declare our worldwide income. So it brings a whole another set of questions. So with that, may you please introduce yourself? Who you are? Background? Sure. Thank you for taking the time to have me on your podcast today. So a little bit of background, I am Nadia. I started my career in taxation actually by coincidence. I come from a finance background and a legal background. So the two came together when the UAE was introducing tax into the country. It actually came on the back of a Gulf Cooperation Council agreement, and then each Gulf country implemented their own tax laws. I had the pleasure of being part of the federal tax authority team prior to implementation and for the early stages. I felt that with my background and with my education and with the knowledge and confidence I had in what I wanted to do, that it was time to set up my own firm. That's what got me into taxation and then the legal side. That's what made me pursue even further my legal career. Here we are today. I'm in my sixth year. I have blended everything that is related to tax, specifically international tax, for companies that have multi-jurisdictional reporting. I generally deal with dual citizens or companies that have multiple filing requirements for compliance. And obviously, with financial planning comes tax planning and other things. So I deal with ultra-high-net-worth individuals. I deal with corporations. I deal with various corporates, even smaller family offices and these types of things, and individuals. Now, because a lot of the attraction to the UAE does come with real estate and obviously we have seen a very healthy boom in the real estate market, and this is across all Emirates. I will not just keep this as related specifically to Dubai. I will speak of the UAE as a whole. That's what made me even more focus on two things. I come from a family where we started out in real estate, so I had the advantage of being involved in real estate, whether it comes to the property maintenance side, whether it comes to the actual development side, whether it comes to dealing with tenants and all of the other things. So looking at ROI perspective, looking at capital growth, like that generational wealth, it's something I wanted to continue. It doesn't feel like work for me. I love what I do. I'm very blessed. Every single thing you just said is such a hot topic and hot button for my listeners and my investors, particularly because America just started climbing the list of top 10 investors and not just real estate, right? As you mentioned, setting up home offices here, Fortune 500 companies setting up headquarters here, dual citizen, a lot of, let's say, Pakistani American, Indian American. So there's a lot of confusion about how to ensure you are abiding by the laws of multiple states but also minimizing the tax implications. To find somebody who's able to look specifically at my investors, which are, let's say, the dual citizen or even just American-based, right, and to be able to answer some of the most asked questions and concerns is amazing. I believe you're one of the first. You're one of the first to even handle international taxes here in this region, right? There are a lot of companies or offices that have done a franchisee-type setup. I did not. This is purely my own. A lot of the other firms in the market or competitors, they work in reverse. They will look after your international taxes and then apply local laws. We work in reverse. We're based in Abu Dhabi, Dubai, Sharjah, and in JAFZA, which is a prominent free zone here. So we work on making sure you're right here, and then we work in reverse. I do have other affiliates in other countries, whether it's under the European Union, whether we have other places. I'm also an Australian educator, so I do a lot of work with Australians. Yes. So I really focused on working with US persons. I won't call them American citizens. Anyone who's either born in the USA, a resident of the USA, green card holders. All of this because you still have your FATCA requirements. Can you explain that, actually? Please? That's a great question, right there. Yes. Now, because regarding, I won't get into W8 or W9 reporting because that's a bit different. That's talking about investment incomes and whatnot. It's not specifically related to what you may earn from real estate. Now, the UAE complies with FATCA requirements from a long time ago. Any US person who opens a bank account here will have FATCA requirements. They will be having all of the reporting, reporting back to base your IRS. Is it automatic? So for example, for me, right, I have my US passport. I go open up a bank. It's an automatic reporting system. It triggers something in the US. Correct. What happens is on the initiation of opening your bank account, part of the KYC and the due diligence, if you are even born in the USA but you do not have a USA citizenship or even a green card, you still have to go for FATCA reporting. So you're ultimately authorizing the bank to report about your bank account to the USA authorities. So even though in Dubai there are no capital gains taxes for someone who's purchased property and sold it, there are no income taxes, but there's that reporting system. So when we go back to Al Samad in the United States, we have to pay the piper there. Or, I should say, work with you first to make sure that we're abiding by the local laws and then structuring and engineering exactly right. It's the initial structuring. It's strategizing before we even start making that income. So now I'll ask you a question. If someone holds dual citizenship, US and Pakistani, US and Indian, okay, what happens in that scenario when they open a bank account and what do you advise? It's a very hot topic when you speak about specifically Indian and USA citizens. We have two things here. A lot of Indian nationals who also live in the UAE have something called an NRI card. They're non-resident Indian. Many of them also have a US citizenship. Now FATCA requirements only apply to the USA part. On their NRI side, that's something completely different. It's something they would deal with in India, but it's not as prominent as what Uncle Sam is implementing all around the world. We look at it in multiple ways. One, am I looking at you as an individual? Am I looking at you as maybe someone who is going to be earning a side income, wants to just have a little investment in Dubai that might grow in the future? Or are you coming in as maybe a firm who wants to build a holdings company and hold multiple assets underneath? Or are you an investment fund yourself and you want to buy all of these properties and have dividends on it? It really depends. It depends on who you are, what you're doing. Just two days ago, the minister of economy has firmly declined any rumors about income tax coming in. They said there is no near talk about it. No, no. We've been very clear about the path of taxation in the UAE from the beginning. The VAT, actually, before VAT was implemented, there's another little tax which is set up in the form of a tariff. So that's excise tax. That is a sin tax or sugar tax on certain items and products. That is a 100 percent tariff on importation. You don't even know what you're paying right. Then the second tax that was implemented was VAT. VAT with real estate is there on commercial properties, on hotels, and on real estate. It's also there on things like student housing or labor housing, anything that has additional services tagged to it. That is where you're going to be paying VAT. The end user is paying VAT, but as an owner, you have responsibility for collecting that, declaring that, paying the difference on whatever your expenses and costs are. You're only paying the difference there. Commercial is a whole other setup and beast that we probably should dedicate another episode to. The reason I say that, Nadia, is because now I am having Americans that are saying, look, we're finding out that ultra-high-net-worth individuals are moving to Dubai at record numbers. We find out daily that we have job growth, economic stability, GDP growth. Setting up a base here in this area, UAE, as you said, not just Dubai but UAE, any of the emirates, allows you to have a foothold and access to a whole other part of the world. Correct. Right. So there is a lot of interest right now from corporations that are based in the United States to say, okay, GG, go find out how we can do this. And there are misconceptions that they are not allowed to. I've already had to address that with freehold and leasehold for regular investment. But I do believe there's value for us to do another episode specifically on commercial. Fantastic. And maybe we can put it out to the audience that if they have specific inquiries or things they want to touch on later on, especially, you know, US HIPAA compliance, all make sure to just ask some questions in the comments. Because this is an ongoing conversation. That's the other thing. Dubai specifically is such a baby. It's so new and so dynamic. If you're not staying on top of what's happening, you know what I mean? It's not like the United States or California where it's a mature market. The rules aren't changing as much. It is important to have experts such as yourself to come in and guide our investors. That's what I do differently. I'm not appealing to just sell a property. I'm helping guide, build, and manage portfolios. Now understand more of the commercial opportunities. So, Nadia, one question that I ask a few of my legal experts on here, I've even had the pleasure to ask Dubai Land Department's Dr. Mahmoud Al-Bahar, the senior adviser. I always get the same answer, but I want to ask you. Should an individual buy a property in Dubai in his or her name, or should they set up a corporation? And what are the advantages or disadvantages of that? Okay. Now, there is no yes or no answer to being better this way or this way. What do you want and what are your goals? Okay. So today, let's assume that I'm here to buy one property. I'm just entering the market, right. How long do I want to have this property for? Am I getting this property as a vacation home when I'm in Dubai? Is it going to be my primary base? Is it going to be something that I want to flip very soon? When you're buying property, we have multiple options. You can buy off-plan. You can buy something that's halfway through being built, at a later stage of completion, or you can get ready-made properties. It all depends on what you want to do. When we're talking about tax simplifications as an individual owning a property as a natural person, you have no VAT implications. Then you're not going to have any corporate tax implications. So, as you're aware, corporate tax, which was the first direct tax introduced in the UAE, is only 9 percent, which is still less comparatively, right. Correct. We're still in the single figures. So when you're first entering the market as an individual and you want to do something on your own, definitely buy it in your own name. That is the consensus. And that's what we recommend. And you know, part of the fear that we have as Americans, Nadia, is that it's a very litigious country. God forbid someone falls, we're going to get sued. Someone, you know, water mold, you're going to get sued. But that's not the environment here. Yeah. So therefore, the idea of protection and setting up, it's not essential. It's not the way. Do you agree with me on this? Yeah. When you're talking about it in that sense, so you're talking about having limited liability. At the end of the day, obviously, every building has its own occupational health and safety requirements and all of these things. There's certain liabilities where you may or may not be responsible for. I've heard of instances in the US where a footpath out the front of someone's house was unstable. Someone fell, broke their leg, and they ended up selling that house to pay their compensation. Exactly. It's not the environment or the mentality or attitude that is around here. Alhamdulillah. Alhamdulillah. Exactly. We'll keep it that way. Yes. But on a serious note, when you're here looking after your personal assets, at the end of the day, you as a natural person, it's not about you being sued or having to lose those assets. You may have a risk in case of having a mortgage, where the bank is the initial owner and you're the secondary owner. You're only owning whatever equity you have there. When it comes to tax implications though, being a corporation and owning a property, there's actually limitations on what type of natural persons can hold properties in the UAE. Yes. So it's not like any company can come own a property. Okay. Especially if it is zoned as residential only. Can a corporation secure financing either? So for example, am I correct, if I were to come and buy an off-plan, I really specialize in off-plan projects. If I were to come buy an off-plan and I want to buy in a corporation name, but then when it comes time to the financing, right, before handover, as a corporation, it's not as simple as me being able to go to a bank and secure the financing for the remainder payment. Is it? That is going to depend on your profile as a corporation. You may have international bank facilities. You may have all of the other things. I can talk about the financing of properties in another whole episode if you want, because like I said, I come from a finance background as well. So we do, whether it's a special vehicle, whether it's a pure commercial loan, or all of these things, there's multiple banks specifically in Dubai who do offer commercial property facilities. There are various loan-to-value ratios depending on the type of property, location, and obviously the history of that corporation. But those facilities are available. It just depends on what type of company is going to be holding it. Now, as you know, when you're purchasing property in Dubai off-plan, before you get your title deed to secure investors, we have something called Oqood. With that, it's where your money is going into an escrow account, protecting investors. You know, being the trustee between the investor and the developer to make sure that one, the developer is performing as per the requirements of the service level agreements in the SPA, as well as that you as the investor are not breaching or being late on any payments. It's covering all parties and there's an intermediary, a non-biased intermediary, to cover both sides. Now, on completion, a lot of banks do offer many deals and they may have tie-ups with investors. But when you're coming in as a corporation, you're generally not buying one unit. True. You're having multiple units, whether it's whole floors or half buildings or whatever it may be. So generally, corporations come in with some type of finance history. We can always work on a deal with them, whether it's you using leverage on other facilities they have or other assets they have. There's always a way to work a deal. So, if I can repeat back basically, because I'm absorbing this at the same time as you're sharing this. As an individual, you're coming to buy one, two, three for yourself. You don't need to do this. But if you have different purposes and you're coming in as, let's say, a holding company, for example an investment company, then there may be a benefit to creating and engineering that structure here. One hundred percent. And that's something. There is financing potentially available, as you just stated, which I didn't know. So thank you for sharing that. Now, to go back to the off-plan process, which I have episodes with the Dubai Land Department about, you know, that, just for example, the escrow account, how important that is, and how they're protected because that money is going through the intermediary. There's a checks and balance system between the DLD with the RERA, the real estate regulatory agency, overseeing all real estate transactions. For myself, being here and vetting the developers that I recommend for my investors, a lot of them are experiencing this for the first time in the Middle East. Being a safe developer, working with a government-backed developer, boutique developer still but with a very strong profile. What is your experience? And what can you say if they don't meet the DLD's requirement of delivering on time? What's the accountability for a developer, especially for a global investor that's based somewhere across the world? Okay. There are obviously within the SPA agreement itself something called milestones. Milestones do have a buffer. Actually, before I get into that, let me give you a background of why this system was made. Why escrow accounts even came in and why the RRA had made this specific system for off-plan. Off-plan is a big thing. So long ago, before I was even born, probably, no, no, I was probably still in middle school, but obviously, Dubai had a bubble. People saw cars deserted, luxury cars, mansions being deserted. All of this. People love to tarnish the name of Dubai. This massive bubble that burst. Buildings were left half-built. We're very blessed to have the leaders that we do. His Highness Muhammad bin Rashid, what he has done to Dubai and his sons are following in their footsteps. The minister of finance and what they have done to protect not only investors but also the reputation of Dubai and to make Dubai the most secure place for investment for its residents, for visitors, everything. They have set up this exact system. The minute you make your down payment for that off-plan development, that is registered as yours. You don't have a title deed because your certificate of completion is not ready yet, right. You haven't handed over the product. Correct. But before, people used to say things, which in English is like superficial, not even superficial, like fantasy, right. You know, like you're buying a fantasy property. Developers were kind of doing these things like selling the 10th floor and 11th floor, but they haven't even started digging in the ground yet. Or breaking ground. That cannot happen anymore. Developers have to go through a very big due diligence. They have to prove that they have a lot of backup assets. They have to prove that they are able to secure and hedge any possible losses that may occur. So they're held accountable legally. They have other assets that have been secured just to even get these developments approved. The funds that are going are in escrow, so very important point. I mentioned before I gave you the background is there's something called milestones within the service level agreements in the SPA. Each milestone that is achieved and verified by a third party from RERA through the Land Department. These are changing all the time, so there's no way that there's any type of bias or corruption or anything like that. Once that milestone is achieved and verified by the governing body, only then can the payment from the escrow be released so that the next stage can happen. Yes. When it comes to lateness on delivery, there are also penalty clauses there. And I could speak about that. I don't like to mention any specific developers because I have respect for all of them. I'm not affiliated to any and I'm not against any. I go where the money goes. You're a neutral adviser, which is part of why I love having you. Yes. Now, there have been instances where properties have been developed late and they're actually paying out. Okay. Getting your compensation one hundred percent. And this is open data. If you ever want to talk to your clients about that, this is open data. Do you think that developers do this mistake again? No. Because we have a name and shame system. Once this is open publicly that this has been paid compensation, it does not happen again. If anything, that makes developers want to overperform. Now, a lot of instances, and I'm speaking from personal experience and also what our clients have invested in, you're seeing Dubai change. Almost all developers are actually delivering beforehand. Yes. They are, especially the ones that we work with. Exactly. Especially the ones that we recommend. Because that means your money gets to work for you sooner, right. Sooner. If you're able to. You're not forced. Just because one hundred percent is completed, you don't have to pay it. No. You still have time until the completion date. Great. Yes. Good point. So you're still on that payment plan if you want it. But if you want to get it done sooner, and as you know, we can now do financing for these, whether it's commercial or individuals, we can have a longer time for buffer to organize those finances to get those final payments done. And as you know, the RERA system, with the Dubai Rest application, we should have a whole episode just about the applications. And that's the other beauty, right? That makes that. I think a lot of people over-complicate it. In the United States, I sell real estate in California. You need to have a notary. You need to have an attorney. You need to have an escrow account. You need to have so many moving pieces. It's litigious. There's homeowner's insurance that you have to have. There's so much. But here, everything is digitized and simple. Yes. You should work with a neutral broker. I do not believe in going directly with the developer. There's a misconception out there that you will get a discount. But in fact, with top-tier developers, you're not getting a discount. The developers for off-plan pay brokers commissions, but you get a hidden commission. They tell you no commission. There's a hidden commission. There's a hidden what do you mean by that? The hidden commission. So let's assume today I have made an inquiry to XYZ developers. You individually. Me individually. And I think that I'm dealing directly with the developer. And the representatives will contact me and they'll say zero commission. You know, you're only paying your 4 percent DLD, you know, and you're paying your registration. Zero percent commission. However, there is a commission additionally. But there is a backend hidden commission that is being paid. Correct. Thank you for clarifying that. Didn't know that. And of course, you don't have someone that's going to help guide you post-sale. Service of whether time. Connect you with someone like yourself to help structure, engineer. If they're building a portfolio here, property management, etc. Speaking of paying, by the way, I want to just insert this really quickly because another thing that is so interesting about Dubai and unique from any other market is that you can pay in cryptocurrency. I'm so happy you spoke about that. I'm so happy you spoke about that. So may you talk. I mean, we don't unfortunately for this episode have that much time left. But this could be again a whole other episode. I don't know. I'm admitting I do not know much about cryptocurrency. You're my follower. Have you seen my crypto post, right. I do see. Okay. So share with us. You can buy property in Dubai with cryptocurrency. Not just normal crypto, right. Okay. You can also leverage your crypto accounts, work on a private deal with a developer, and this is something we do often. Okay, yeah. So we also leverage your profits and accelerate the payment plan through crypto. Yeah. Through your wallet. Yeah, yeah. There is so much we can do. Wow. So developers accept payments via crypto. Obviously, they may have specific currencies that they want to deal with. Obviously, your on hold of. So we can do a lot of things. That is amazing. It's amazing. It really is a city of the future here in Dubai. I believe we discussed okay, off-plan, the accountability if there's a delay, you talked about milestones, the SPA, the DLD, RERA, working. The hidden commission with that, I didn't know, going directly with the developer. What about, are you finding home insurance and legalities with that becoming more important right now in Dubai? Or in the UAE in general? Let me relate this to something that's a fresh topic for most Americans. California fires. We're not a country that has many natural disasters. Excluding what happened last year with the floods and whatnot, but even then, structurally, that wasn't something that was wiping out cities like what we've seen. Unlike what we saw in videos, but it's very sad. It honestly looked like something out of a horror movie. Now, when you're purchasing off-plan and purchasing things without a mortgage, you don't have any mandatory insurance. When you purchase a ready-made property or you have converted your ready-made property to having a mortgage, there is compulsory insurance. Now, you can choose to have it through your bank, or if some banks allow you to introduce your own, but you must have your own life insurance policy. Now, because we cover more than one law, we have Sharia law and then you have your conventional laws. The bank usually just mandates a flat fee as part of an insurance in case of death. Some additionally will add involuntary unemployment insurance or permanent disability. Some people choose to pledge their existing plans when having that mortgage as first beneficiary. Now, when it comes to home structure and contents insurance, it's not something that you will find very prominent here like you will in Western countries. One, we have a very low crime rate, so we don't generally insure against thefts or burglaries. You have almost a non-existent crime rate. Alhamdulillah. Yes. Now, when you're talking about structures and all of that, we know people who live in villas, especially, we have certain areas where only GCC nationals live. We have something like a unified fire system. We have a smart system in all of our houses, and this is mandatory. The government has subsidized it for all of us. So in case of a fire, the fire department's there literally within a few minutes. I'm not exaggerating when I say less than five minutes. Yeah. So we have insurances in other ways. We don't talk about specifically insurance policies. It's not something common. No, I just want to confirm. You touched upon something and you spoke about Sharia law. Sharia. Yes. Which I'm just going to be honest, Americans are going to hear that and they get a little freaked out because of preconceived notions. Which hopefully, just having this powerful woman who has created and opened her own firm, that's already probably breaking so many misconceptions with Sharia law. It's not very complicated, and it really only applies correct me if I'm wrong, if you're a Muslim. Yes. So if you're an American who's not Muslim, then Sharia law does not apply in most cases. Yeah. But for example, let's assume like for marriages and divorces, if one party is Muslim or not, it also depends on where your marriage was officiated. So if it's in America, though, yes, your prenups and everything, your American assets will follow everything. What about wills? Wills also depend on your nationality. Exactly. So if you are a Muslim, of course, you already know about Sharia law because no matter where you are, that applies religiously. But if you're an American non-Muslim and you have a will, do you recommend obviously just for off-plan we don't need it, but once they start building a portfolio, do you recommend that they create a will here in the UAE? Yeah. We get a lot of their wills created or authenticated and verified and registered within the DIFC as well. So if they already have one in the US, should they still do one here, or is that going to suffice here? It will help. When it comes to the time, God forbid, but specifically, it should mention these assets. It should be notarized. Great to know. And that's something you can assist with as well. Of course. I love that you have a financial background. I definitely need to have you back on. Yeah. Because it comes down to, you know, from the root of all of this is money, right. And it's not, I'm saying this coming from greed or anything like that. We've had a very great background. But it comes from the sense that wealth. You want to grow your wealth. You want to invest, whether it's cryptocurrencies. We do other mutual funds. We look at other special investment vehicles. We look at non-conventional financing things, all within what is halal. We keep things halal. And real estate is a big portion of any investment fund at the end of the day when you talk about assets and especially assets that appreciate. Assets that I will not call them liquid assets because they can't be defined as liquid assets. But Dubai or UAE properties are very secure assets. One, they move fast. We can sell my property in a day now if I needed the cash. The transfer and the title deed will be done clicks with my UAE pass. Exactly. And Americans say, well, how do I get my money back as quickly as it takes from transfer to bank to bank? I'm going to ask you a question, and I hope we have time for this. Sure. What do you say to people that say that it's peaked and Dubai is in a real estate bubble? Dubai is not in a real estate bubble. The demand is higher than ever. Our GDP speaks for itself. The growing population speaks for itself. The amount of units that we have being delivered is not enough. The amount of families, I'm not speaking of just single individuals, that are coming here. We talk about statistics. Who wants to say that? Back it up because the numbers do not lie. Dubai is a very transparent real estate market. You have the DLD website. You have Property Monitor, Property Finder. That shows. And as you say, population speaks for itself. Yes. I think that a lot of people say I should have gotten in two, three years ago because of the growth. But if you still compare the price per square foot, the entry level, the opportunities, the no property taxes, the rental returns, and then I had a guest on the other day who said, okay, GG, all the numbers make sense. Dubai is the best place to invest in globally for real estate. Aside from that, what you and I started this whole episode about is the amount of ultra-high-net-worth individuals and businesses and Fortune 500s. Dubai is positioning itself as a global business hub. So you know that's a way to get a foothold into this market. And the Golden Visa is through that. That's one thing, right. One way. That's one way. One hundred percent. We have multiple advantages. One, our government and our leaders are incomparable. Our laws are amended and changed and updated in record times. Our population is growing faster than ever. Our physical geographical location is a hub for Africa, Europe, your Far East, your Russia. All of this. We're at the core of what used to be the Silk Route. Yes. Now we are leading in technology. We're leading in finance. We're leading in real estate. We're leading in artificial intelligence. Our laws are being updated and amended to back up any industry. We are an e-commerce hub. There is nothing that does not get imported into the UAE. Some is being re-exported. We have free zones that support any type of business. We have manufacturing and obviously we have our natural resources. Yes. Exactly. Which is not the primary source of income. Right. The industry is so diverse here, which is great. But yeah, you have that too. That's just natural from Allah. Subhanahu wa ta'ala. Nadia, I am honored to have such a highly positioned, intellectually positioned woman. You know, like you don't know much about me, but I'm a mother of two daughters. I believe you have two children. I do. I have two girls. Two girls. Yes. I do too, and I also have a son. And as a first-generation Arab American woman, I am all about strengthening our daughters and showing them by example that no matter what they say, it's not a man's world. It's our world. We have to push ourselves through. To have someone like you is just amazing to me. Thank you. Thank you so much. I think we need to set up a lot more to get into because this was too short of time to get into everything. We can get into. With that, please make sure to like, subscribe, follow, and stay tuned for the next episode of The Dubai Connect podcast.