DIFC Family Office
Corporate Structuring / UAE
Izabella SzadkowskaPartner,Corporate Structuring
Nima MoshggooAssociate,Corporate Structuring
Family businesses are an integral part of economies and societies worldwide. In the MENA region, they have been an essential part of the economic landscape for centuries. They are especially important in the Middle East where family businesses constitute a large proportion of all companies, contribute to a significant part of the GDP, and employ most of the workforce in the region. In the UAE, the Ministry of Economy reports that up to 90% of private companies, which account for roughly 70% of the country’s GDP, are family businesses.
One of the jurisdictions actively engaged in supporting family businesses is the Dubai International Financial Centre (“DIFC”).
To promote good governance in the context of family businesses, the DIFC have remodelled their family office offering. They have revoked the previous DIFC Single Family Office regime of 2011 and replaced it with the DIFC Family Arrangements Regulations (“New Regulations”). The New Regulations came into force at the end of January 2023. With this development, came the announcement of the opening of the DIFC’s first Global Family Business and Private Wealth Centre.
The New Regulations provide comprehensive guidelines for family businesses holding assets and operating in or from the DIFC. They take into account the recent enactment of the UAE Federal Law No. 37 of 2022 (‘UAE Family Business Law”). The New Regulations allow families to manage their businesses and preserve wealth through succession and legacy planning within the DIFC, in a manner that will also assure recognition and enforceability in the rest of the UAE and elsewhere.
The New Regulations introduced the concept of “Family Office”. A Family Office is any form of a DIFC entity, such as a private company, a recognised company, a general partnership, a foundation, or other legal entities registered in the DIFC, that is licenced as such by the Registrar.
Family Businesses are those incorporated under the UAE Business Law or entities in the DIFC that are controlled by a family, which are registered in the DIFC Family Business Register. In contrast, Family Entities refer to any legal structure (excluding not for profit organisations) controlled by a family and established for the sole purpose of holding or utilising assets of a family, a Family Structure or the succession or legacy planning of family assets. A Family Structure can be any number or combination of one or more Family Entities or trusts.
Any public and private company, partnership, foundation or other legal vehicle registered in the DIFC can be licensed as a Family Office in the DIFC, provided that the DIFC entity in question can evidence that the net asset value of the Family, in aggregate, is at least USD 50 million. The value should be determined by way of a fair market value assessment, or by way of a book value assessment if it is not possible to ascertain fair market value.
Family Offices can provide services to one or more Family Members, Family Entities, Family Structures and Family Businesses. A Family Office may provide Family Office Services to more than one Family, provided that it is approved by the DIFC Registrar of Companies (“ROC”) after it satisfied the ROC regarding the shared arrangements between the respective Families and the reasons for doing so.
There are various services that a Family Office can provide, including the following:
Family services: including succession and legacy planning, household assistance and property acquisition management;
Strategic services: including Family Business/Family Entity/Family Structure advisory, strategic business advisory, and business management and oversight;
Tax and wealth planning: including tax reporting and compliance, tax planning and wealth transfer planning;
Investments: including portfolio monitoring, asset allocation strategy and investment due diligence;
Finance: including budgeting and forecasting, procurement and accounting;
Legal: including regulatory and compliance assistance, contracts management and company secretarial assistance;
Risk management: including fraud prevention, cyber-security, and insurance; and
Fiduciary: including acting as a holding company, proprietary investment company or trustee for a family entity.
The DIFC entity acting as family office will have “Family Office,” as its licensed activity, appear on its commercial license.
A Family Office or a Family Entity does not need to carry on its principal business activity in the DIFC, provided that it has a substantial presence in the UAE and has appointed a Corporate Service Provider as its registered agent in the DIFC.
Notably, under the New Regulations, the details of the shareholders, interest holders, directors and officers of a DIFC Family Office or Family Entity may benefit from no disclosure under the public register of the DIFC, and mere disclosure under the private register for family businesses to the DIFC.
Moreover, the New Regulations also lay out mechanisms on which Family Entities or trusts within a Family Structure may incorporate binding arbitration procedures in the event of disputes.
Furthermore, a Family Office or a Corporate Service Provider acting on its behalf must keep all records that are sufficient to show and explain the due diligence conducted to verify:
the global wealth or net-worth of the relevant persons served by the Family Office and the origin of the funds used to fund the Family Office; and
where transactions are entered into and services are provided by the Family Office, the origin of the funds of the relevant persons.
These records must be preserved for at least six years from the date on which they were collected for these purposes.
A Family Entity or Family Office that is incorporated, registered, or continued in the DIFC as a company will be regarded as a Private Company under the DIFC Companies Law irrespective of whether or not it meets the requirement of having a maximum of 50 shareholders. It follows, even if the Family Entity/ Office has over 50 shareholders, it will maintain the “private company” status.
Finally, the New Regulations have eliminated the requirement for a family office to register as a Designated Non-Financial Business or Profession (DNFBP) with the Dubai Financial Services Authority (DFSA). However, multi-family offices that provide financial services to multiple families by way of business will need to be authorised and licensed by the DFSA.
We expect the introduction of this new DIFC Family Office regime to be a welcome development for family businesses, as it offers a flexible and modern approach to wealth management and succession planning.
The New Regulations were created to strengthen the position of the DIFC as one of the world’s leading locations for private wealth structuring, and enable more family-owned businesses to start operating from its Global Family Business and Private Wealth Centre. Bringing more regional and global family-owned businesses, private wealth offices and ultra-high net worth individuals together into the same environment is expected to further boost the growth of this sector in the UAE.
For further information,please contact Izabella Szadkowska.
Published in April 2023
