Escrow in UAE: What it is and what you need to know
An escrow, in its most basic form, is where money is held by a third party and released when contractual requirements are met. Although many people are unfamiliar with this concept, it is growing more popular in a multitude of industries as it serves as a safeguard to guarantee both parties involved in a transaction are not held up in a complex financial transaction.
A Brief History
Previously, escrow transactions involved the intervention of a bank or a law firm to set up designated accounts and function as a trusted third party. This process is costly, time-consuming, and paper-intensive. Often unregulated entities marketed themselves as Escrow Agents in the UAE.
In 2007, H.H. Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai and Prime Minister of the UAE, issued Law No. (8) of 2007 concerning Escrow Accounts for Real Estate Development in the Emirate of Dubai. This law was the first of its kind, mandating the use of Escrow accounts for the purchase of off-plan real estate developments. (More info. here).
Why Use an Escrow Service?
Escrow has many uses outside of real estate including the sale and acquisition of a company. Often, the Seller wants to ensure they receive payment prior to the transfer of the shares and the purchaser only wants to release funds against an updated Certificate of Incumbency, registered with the relevant authority. This creates a negative loop where escrow can serve as the solution to ensure both parties feel secured in the transaction.
Thanks to technological advancements, escrow has now become more digital and democratized, making it available to anyone for any transaction of any size, allowing it to be set up instantaneously. Further, through electronic execution, the parties are no longer required to be physically present to execute their escrow transaction as they can sign electronically. Escrow secures the interest of both the Seller and the Purchaser by ensuring:
The Parties they are transacting with are cleared from a KYC/AML perspective
Funds are available and earmarked for this transaction, neither Party may Release funds until the transaction is completed against the pre-specified parameters
When to Use an Escrow Service?
When conducting a complex transaction that requires a trusted third party to hold and release funds
When conducting a transaction where certain obligations must be met prior to the release of funds
Transactions where the Seller must fulfill obligations against which their payment will be held in Escrow
When a transaction must be completed in stages, an escrow comes in handy. The service provider may require finances to finish the job, but paying the whole sum before completion may be imprudent. As a result, funds might be released in stages as preset milestones are met.
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To find out more about escrow or general inquiries for commercial transactions, please contact info@titaniumescrow.ae or call us +971 (4) 880 9456.
