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  • Writer's pictureAkram Cheik - Lawyer

The dismemberment of property in the United Arab Emirates


The dismemberment of bare ownership and usufruct is a legal technique commonly used in the field of real estate in France and the United Arab Emirates. This is a mechanism that separates the ownership rights of real estate into two distinct parts: bare ownership and usufruct. In France, this practice is regulated by the Civil Code and in particular makes it possible to benefit from tax and inheritance advantages. In the United Arab Emirates, the right of dismemberment is also recognized and regulated by Federal Law No. 5 of 1985 relating to real estate transactions.


Bare ownership represents the right of ownership without the right of use, while usufruct represents the right of use without the right of ownership. This separation of rights can be used for various purposes, in particular to plan the succession, to obtain financing or to benefit from tax advantages. However, the modalities of the practice may vary depending on the country and the situation.


This separation can be done in several ways, for example by a sale, a donation, an inheritance or a voluntary dismemberment of property.


In this case, the dismemberment of ownership consists of dividing full ownership into two distinct rights: bare ownership and usufruct. The bare ownership is then held by one person (called the bare owner) and the usufruct is held by another person (called the usufructuary). The bare owner retains ownership of the property, but cannot use it or collect the fruits (income). The usufructuary, on the other hand, has the right to use the property and to collect its fruits, but cannot dispose of it freely or sell it.


In addition, this separation can be temporary or permanent. This dismemberment of property law applies both in France (I) and in the United Arab Emirates (II)



I – The dismemberment of property law in France



A - Tax advantages



The dismemberment of ownership may have a tax interest for the bare owner and the usufructuary.


From a tax point of view, the holding of bare ownership is considered a situation of escheat, because the bare owner does not receive any income or benefit from the property held. As a result, the value of bare ownership is reduced compared to that of full ownership.


On the other hand, the possession of the usufruct is considered as a situation of effective enjoyment of the property, and therefore of the collection of income. As a result, the value of usufruct is high compared to that of bare ownership.


Thus, the dismemberment of ownership can allow the bare owner to benefit from a reduction in the tax base on real estate wealth (IFI) and income tax (IR) due to the reduced value bare ownership. Similarly, the usufructuary can benefit from a reduction in the base of the ISF and the IR due to the high value of the usufruct.


In addition, in the case of rented property, the rental income is divided between the bare owner and the usufructuary according to the respective value of their right. The bare owner not receiving the income, he will not be taxed on it. The usufructuary, meanwhile, will be taxed on the income received according to his marginal tax bracket.


In short, the dismemberment of property can therefore offer interesting tax advantages for both parties.




B – The advantages in matters of inheritance



The dismemberment of ownership can be of interest in inheritance matters because it allows the bare ownership and usufruct of a property to be transmitted to different heirs in an equitable manner.


For example, if a parent wishes to transmit real estate to his children, he can do so by dismemberment of property. In this case, he will transfer the bare ownership to one child and the usufruct to the other child. The bare owner will thus have ownership of the property, but will not be able to enjoy it or collect the fruits, while the usufructuary will be able to use the property and collect the fruits.


Therefore, this solution makes it possible to respond to different family situations. For example, if one of the children wishes to continue to occupy the property, he will be able to benefit from the usufruct and continue to benefit from it as if he were full owner. The other child can recover the bare ownership, and can sell it, rent it or transmit it in turn to his own heirs.


In addition, by passing on the bare ownership and usufruct in this way, it is possible to reduce the inheritance tax to be paid by the heirs, since the value of the bare ownership is reduced compared to that of the full ownership. . Thus, inheritance tax will be calculated on the value of bare ownership and usufruct, which will be lower than the value of full ownership.


In short, the dismemberment of ownership can offer interesting solutions for transmitting real estate to different heirs, allowing them to each benefit from a different and equitable right. However, it is important to seek professional advice to avoid pitfalls and understand the legal and tax implications of this situation.



II – The dismemberment of property in the United Arab Emirates



A – The separation of bare ownership and usufruct in Dubai



The right to dismember property exists in the United Arab Emirates and is governed by the Federal Law No. 5 of 1985 relating to real estate transactions (Real Estate Law).


According to this law, the property can be dismembered into two distinct parts: the usufruct (known as "Manfaa") and the bare ownership (known as "Milk"). The law states that the usufructuary has the right to enjoy the property and to receive its fruits and revenues, while the bare owner has the right to dispose of the property and to benefit from it when he recovers the property. usufruct.


With regard to the Emirate of Dubai, the right to dismember property is also recognized and regulated by Federal Law No. 5 of 1985 relating to real estate transactions. The law provides that the property can be divided into usufruct and bare ownership, and that each part can be sold or transferred separately.


Therefore, the dismemberment of property is often used in Dubai for real estate development projects. For example, when a property developer wishes to finance a project, he can sell the bare ownership of the land to an investor while retaining the usufruct. This allows him to finance the project without losing ownership of the land, while the investor will recover full ownership of the land once the usufruct expires.


Finally, property stripping can also be used for succession planning. Indeed, by transmitting the bare ownership to one heir and the usufruct to another, it is possible to reduce the inheritance tax payable by the heirs, while allowing one of the heirs to continue to use the property. .



B – The impact of the right of dismemberment in inheritance matters in Dubai



The dismemberment of bare ownership and usufruct in Dubai can have a significant impact in inheritance matters. Indeed, this practice makes it possible to plan the transmission of one's assets in advance, by dividing the property into two distinct parts: bare ownership and usufruct.


In this context, the bare owner can transmit his assets to his heirs in advance, while retaining the enjoyment of his property until his death. The usufructuary, for his part, can continue to use the property until the end of his right of usufruct.


In terms of succession, the bare owner can transmit his bare ownership to his heirs, who then become owners of the property upon his death. The usufructuary, on the other hand, cannot transfer any right of ownership, but only his right of usufruct.


In addition, the dismemberment of property can therefore be an effective estate planning tool for expatriates in Dubai, who can thus organize the transmission of their heritage in an advanced way and protect their heirs in the event of death.


Finally, it is possible that the introduction of corporation tax in the United Arab Emirates in June 2023 will have a tax impact on the right to dismember property.



Akram Cheik, Lawyer




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