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10 April 2008
Pursuant to Article 17 of the UAE Federal Civil Transactions Law 5/1985 and in accordance with the UAE Civil Code, the law of nationality of the decedent applies to inheritance issues. However, Article 27 of the Civil Transactions Law clearly stipulates that the law of nationality of the decedent may not apply if the provisions of such law conflict with Islamic Shari’a rules or UAE public policies. Accordingly, Islamic Shari’a rules may be applied in general to the estate of a foreigner if the provisions of his or her law of nationality conflict with Islamic Shari’a rules or UAE public policies.
Furthermore, under UAE federal laws matters relating to real estate are excluded from the application of the law of nationality of the decedent in inheritance issues. Rather, the law of the place where the property is situated (lex loci) applies to matters relating to real estate. In this regard, Article 18 of the Civil Code provides that:
“possession, ownership and other rights over property shall be governed by the lex situs in the case of real property.”
Furthermore, Article 17(5) of the Civil Code provides that:
“the law of the United Arab Emirates shall apply to wills made by foreigners disposing of their real property located in the state.”
These articles have been the subject of controversial interpretation. It can be inferred from the application of these articles that UAE law applies to immovable properties forming part of the estate of a foreigner who is resident in the United Arab Emirates. This includes matters relating to ownership rights in immovable property and the distribution of respective shares in the ownership. Such an interpretation may lead to the application of Shari’a law to immovable properties forming part of the estate of a non-Muslim foreigner who is resident in the United Arab Emirates.
Another opinion states that matters relating to ownership rights in immovable property and the entitlement of heirs to be legitimate owners and hold a respective share in the ownership must be distinguished from matters relating to the rights and obligations of the owners themselves. Issues which relate to the core of the inheritance and do not in reality concern the property itself (eg, ownership rights in immovable property and the distribution of the estate among the heirs) should be governed by the law of the nation of which the foreigner is a citizen. However, matters relating to the rights and obligations of the owners of the property and any rights in rem will be subject to UAE law, as these are matters related to the property itself, even if they arise incidentally from an inheritance issue.
As a result of such controversial interpretation and the possible application of UAE law, foreigners dealing in or owning real estate property in the United Arab Emirates are advised to transfer their ownership to offshore vehicles. Henceforth, the demise of the foreigner would not affect or alter the ownership held by the special purpose vehicle, and the distribution of such immovable properties among the heirs would become an issue of distribution of stakes in the vehicle itself, which falls under the laws of the jurisdiction where the vehicle was established.
For further information on this topic please contact Tony Maalouli at ProConsult Advocates & Legal Consultants by telephone (+971 50 625 8284) or by fax (+971 4 329 8733) or by email (email@example.com).
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