Precautions to Take Before Choosing the Structure
Acquiring real estate in Dubai may serve a personal wealth‑planning objective or form part of a broader business activity. Where the investment is made, directly or indirectly, through a French company – in particular a société civile immobilière (SCI) – it is necessary to consider both French and UAE law. Setting up a local company does not, in itself, secure the transaction: its tax regime, actual role and governance arrangements must be consistent with the underlying project.
Start by Identifying the Tax Regime of the French Structure
The first question concerns the tax regime applicable to the SCI. An SCI subject to French personal income tax (impôt sur le revenu) and an SCI subject to French corporate income tax (impôt sur les sociétés) raise different issues.
Article 209 B of the French General Tax Code applies to legal entities established in France and subject to French corporate income tax. It therefore does not, in principle, apply directly to an SCI that remains fiscally transparent and whose income is taxed in the hands of its shareholders. This does not mean, however, that the transaction is without French tax consequences: the position of the shareholders, the classification and tax status of the UAE company, the financial flows and the applicable reporting obligations must be examined separately.
Where the SCI is subject to French corporate income tax, Article 209 B becomes a central issue in the analysis. It may apply where a French legal entity directly or indirectly holds more than 50% of the rights in a foreign entity subject to a privileged tax regime. In certain situations involving concerted ownership or dependency, the applicable threshold may be reduced to 5%. Where the provisions apply, the positive income of the foreign entity may be taxed in France without waiting for the income to be effectively distributed.
The Shareholders’ Tax Residence Does Not, by Itself, Resolve the Issue
The tax residence of the ultimate beneficiaries remains relevant when determining their personal tax position. It does not, however, remove the need to consider Article 209 B where the company controlling the UAE entity is itself established in France and subject to French corporate income tax.
In other words, even where the shareholders have become UAE tax residents, this does not automatically eliminate the French tax obligations applicable to the French company.
In the UAE, Real Estate No Longer Means “Zero Tax”
Since the introduction of the UAE federal Corporate Tax, a UAE company holding or operating real estate may be subject to taxation. Under the general regime, the rate is 0% on the first AED 375,000 of taxable income and 9% on taxable income above that threshold, subject to specific rules and any applicable reliefs.
Free Zone regimes require additional attention. For a Qualifying Free Zone Person, most income derived from residential property does not qualify for the 0% rate. The applicable treatment depends, among other things, on the location and use of the property and on the status of the counterparty. The mere fact that a company is incorporated in a Free Zone therefore does not guarantee a tax advantage for a real estate activity.
From a French tax perspective, paying tax at 9% in the UAE does not automatically prevent the foreign regime from being regarded as a privileged tax regime. The comparison does not simply depend on headline tax rates: it must be carried out, on a year‑by‑year basis, between the tax actually borne abroad and the tax that would have been payable in France on the same income under ordinary French tax rules. The statutory test refers to foreign taxation that is 40% or more lower than the corresponding French tax burden.
The Decisive Question: What Is the Actual Role of the UAE Company?
Outside the European Union, Article 209 B provides for a safeguard where the French company can demonstrate that the transactions carried out by the foreign entity have, principally, a purpose and effect other than locating profits in a state with a privileged tax regime. This assessment is fundamentally fact‑based.
Economic substance is therefore important, but it cannot be reduced to having a licence, an address, a bank account or the formal presence of a director. It should be possible to establish who makes the decisions, who negotiates, who provides or arranges financing and who manages the assets. The human and material resources, risks assumed locally and relationships with tenants, agencies and service providers should be consistent with the activity being carried out.
The presence of local resources is an element of evidence; it is neither a “magic formula” nor, on its own, sufficient to exclude the application of the French rules. Conversely, a relatively lean organisation does not automatically trigger Article 209 B where the project can be supported by genuine and sufficiently documented economic or wealth‑planning reasons.
Distinguishing Passive Asset Holding from an Active Real Estate Business
A company that holds a small number of apartments and delegates their entire management to a local agency does not have the same profile as a business that actively conducts property trading, development, renovation or structured real estate operations in the UAE.
A passive activity may make it more difficult to demonstrate that the principal reasons for the structure are other than tax‑driven considerations. It should not, however, be regarded as automatically abusive.
Conversely, simply describing a project as a “commercial activity” is not sufficient. Furnished rentals, short‑term rentals or property operations involving services must be permitted under the relevant local licences and regulations, genuinely carried out and supported by an appropriate organisation. They may also have different consequences in terms of Corporate Tax, VAT, permits and tourism regulations.
Prepare the File Before the First Acquisition
Legal and tax security must be built from the outset. Before incorporating the company or signing the acquisition, it is advisable to document:
- the wealth‑planning or business objectives of the investment and the reasons for choosing the UAE market;
- the reasons why a local company is necessary or economically relevant;
- the allocation of decision‑making between the French and UAE companies;
- the identity of the persons responsible for negotiating, financing, operating and administering the properties;
- the local resources, service providers, costs and risks actually assumed;
- the projected return, financing and operating costs, and the expected tax implications.
This documentation should reflect the reality of the structure over time. A legal regularisation carried out after the event cannot replace governance that is actually exercised on a day‑to‑day basis in the UAE.
The France–UAE Tax Treaty Must Be Considered Alongside Domestic Law
The tax treaty between France and the United Arab Emirates allocates taxing rights over certain categories of income and capital gains. It should not, however, be read as providing a general exemption from French taxation.
The taxation of real estate income, the potential application of Article 209 B, the tax residence of companies, mechanisms for eliminating double taxation and reporting obligations are distinct issues that must be considered together.
Choose the Structure Before Choosing the Property
An investment in Dubai held through a French SCI subject to corporate income tax should be considered as a France–UAE transaction.
The tax risk is generally more significant where the UAE company is subject to a low level of taxation, passively holds a small number of assets and performs no substantive function of its own. Genuine local operations, local decision‑making, proportionate resources and documented economic or wealth‑planning reasons provide stronger elements of defence, without constituting an automatic safe harbour.
It is also necessary to verify that the SCI’s articles of association and corporate purpose allow it to hold the contemplated interest, that the chosen UAE legal structure is legally able to acquire the relevant property, and that the overall arrangement remains consistent with the financing, succession and eventual exit strategy for the investment.
The appropriate approach is therefore to define the project, the respective functions of each entity and the financial flows first, and only then select the structure and the property. It is this overall coherence — legal, tax, economic and operational — that helps secure the investment.
Scope of This Presentation
This article provides general and deliberately simplified information. It does not constitute legal or tax advice, nor does it amount to an endorsement or validation of any particular structure. Any transaction requires an individual assessment of the SCI’s tax regime, the UAE company, the properties concerned, the financing arrangements, the tax residence of the persons involved and the rules in force at the time of the investment.