Crowdfunding, or participatory financing, has emerged as an innovative method of raising funds for businesses and real estate projects globally. Developers have the opportunity to fund large-scale real estate projects, while investors gain access to interesting projects without substantial upfront investment.
While this practice is innovative, it involves crucial legal and tax aspects that entrepreneurs and investors must understand to navigate effectively in this rapidly expanding domain.
What is real estate crowdfunding?
Real estate crowdfunding is a participatory funding process for building or acquiring real estate, facilitated through a fully online platform. This platform connects project initiators with individual investors.
Legal framework for real estate crowdfunding in Dubai
In January 2022, Dubai began regulating real estate crowdfunding to develop and oversee the participatory finance sector. This form of crowdfunding typically involves raising funds from numerous investors for various real estate projects, including property purchases, development, or renovations.
The Dubai Financial Services Authority (DFSA) oversees regulations for real estate crowdfunding in Dubai, ensuring transparency, investor protection, and compliance to safeguard investments' security and market integrity.
Legal Structure of Real Estate Crowdfunding
Once licenses are obtained, developers employ a legal structure, such as a limited liability company or an SPV (Special Purpose Vehicle), to execute real estate investments. Investors receive returns proportional to their investments, either as profit shares (crowdinvesting or equity crowdfunding) or interest payments (crowdlending).
Legal Specifics
Setting up the project must comply with existing regulations. Particular attention should be given to obtaining permits and licenses. Documentation between the project initiator and investors must be drawn up to preserve the parties' rights and obligations.
Taxation
- Company Level: Real estate sales in the United Arab Emirates incur a 4% registration fee, and since June 2023, companies face a 9% corporate tax on profits. Specific rules apply to businesses in free zones.
- Investor Level: Investors are taxed based on their earnings. For foreign tax residents, the tax treaty between the UAE and the respective country determines taxation rules.
Conclusion
The development of real estate crowdfunding in Dubai signifies a significant advancement in the regional financial sector. The prevailing regulations demonstrate the authorities' commitment to innovation and an investment-friendly environment. However, strict compliance with regulatory requirements, monitoring legislative changes, and transparency are vital for ensuring the success of this investment avenue.
Our team stands ready to guide you through your real estate crowdfunding project in Dubai, ensuring a seamless and secure process.
