In a Nutshell:
The scholars generally argued a region can only be called Dar al-Islam where control and sovereignty belongs to Muslim rulers. It is insufficient that Muslims live in that land, or they are allowed to perform some aspects of Islam with the permission of disbelievers. Similarly, non-Muslims residing in a land, conducting aspects of disbelief by the permission of Muslims has no bearing on the land being Dar al-Islam. This is because they do not have dominance - the status of a region hinges on dominance not on presence or appearance.