UAE - Jurisdiction of choice for your Private Wealth Structuring!
Private Client Services / UAE
Fueled by its ambitious Vision 2030 strategy, the United Arab Emirates (“UAE”) is rapidly becoming a major player in private wealth management.
Law Update: Issue 368 - Technology, Media & Telecoms Focus
Izabella SzadkowskaPartner,Corporate Structuring
Dipali MaldonadoSenior Counsel,Private Client Services
Sabeeha MoollaProfessional Support Lawyer, Corporate Structuring
Fueled by its ambitious Vision 2030 strategy, the United Arab Emirates (“UAE”) is rapidly becoming a major player in private wealth management. In recent years, the UAE has implemented a series of progressive regulations and initiatives designed to attract and enhance global financial institutions, family businesses and high-net-worth individuals. Notably, the UAE has taken a forward-thinking approach towards protecting private wealth, making it an attractive destination for those seeking sophisticated financial guidance to preserve their assets across generations.
Below is a mere snapshot of the reasons why many family offices, family businesses and HNW investors are relocating to the UAE and making it home for both their families and employees:
Streamlined Immigration: The UAE boasts a welcoming immigration regime, simplifying the process of relocating families and employees.
Tailored Wealth Structuring: A wide range of structuring options offer families flexibility and control over their wealth across generations.
Family Business Focus: The UAE actively supports family businesses, fostering a supportive environment for their continued success.
Flexible Inheritance Laws: Flexible inheritance laws provide families with peace of mind regarding asset transfer.
Foreign Ownership Freedom: 100% foreign ownership is permitted in many sectors, further enhanced by a network of free zones offering additional benefits.
Tax Advantages: Barring Bahrain, the UAE has introduced the lowest corporate income tax rate within the GCC region at a standard rate of 9%
World-Class Quality of Life: Safe and secure family evionment, excellent schools, healthcare, safety and a strong real estate market with foreign ownership opportunities create a desirable lifestyle.
Connectivity Hub: The UAE's strategic location and advanced infrastructure provide excellent travel links and a convenient time zone.
The UAE's thriving private sector, a key driver of the entire economy, is fueled in large part by the government's dedication to supporting private wealth. This commitment translates into concrete action. The government provides the necessary legislative, structural, and regulatory tools to ensure private wealth remains protected across generations.
This article delves into the world of family offices in the UAE. We'll explore the UAE's legal framework, designed for smooth setup and operation and consider why so many family offices are choosing the UAE over other more traditional offshore jurisdictions.
The UAE ranked first in the Middle East for ease of doing business[1] with its modern investment environment and set policies that facilitate and speed up the establishment of companies through digital platforms. The UAE government has recognized the important of attracting FDI, HNW and top talent by introducing such measures as, inter alia, the golden visa, no personal income tax and attractive lifestyle. Indeed, private wealth in the country is estimated to total USD966 billion and the number of high-net-worth individuals is projected to grow by 40% by 2031[2].Additionally, the UAE places a strong emphasis on tax and succession planning, providing valuable resources for private wealth.
Dubai's real estate market offers a unique double appeal: a vibrant lifestyle destination and a promising investment opportunity. Foreign investors are welcome to participate in this prosperity. Dubai allows freehold ownership in designated areas and gives investors complete control over their property. Beyond the glitz of the city centre, Dubai boasts landscaped communities, green havens, and a variety of living options, from urban chic to suburban tranquillity. This, coupled with the potential for high returns makes Dubai an attractive place for real estate investment.
The UAE has passed Federal Decree Law No. 50/2023, amending certain provisions of Federal Law No. 28 of 2005 concerning Personal Status. These changes officially came into effect on November 30, 2023.
The new personal status law makes the UAE more attractive to investors, and some of the reasons are as follows:
Increased Certainty and Flexibility: This law allows non-Muslims to choose a civil legal system (as opposed to one based on sharia principles) that applies to their personal matters. This provides investors with more control and predictability regarding marriages, divorces, inheritances, and child custody arrangements.
Simplified Marital Procedures: The introduction of civil marriage and no fault divorce streamlines the process of getting married and divorced. Prenuptial agreements can also be registered with the UAE courts and will be enforced, making it possible for parties to agree on financial terms that would apply in the event of a martial dissolution.
Gender Equality: The law promotes equal rights and responsibilities for men and women in areas of inheritance and child custody.
Clearer Succession Planning: The law allows for greater control over asset distribution through wills. HNWI and family businesses can ensure their wealth is transferred smoothly and according to their wishes, promoting long-term stability and continuity.
In essence, the new law creates a more transparent, predictable, and business-friendly legal environment for personal matters, making the UAE an attractive destination for relocation and investment.
The UAE's golden visa program unlocks a wealth of opportunities for investors. By granting long-term residency, it eliminates the hassle of frequent visa renewals and fosters a sense of stability, ideal for those making significant investments. This residency also provides a base to explore business opportunities within the UAE's thriving economy and leverage the country's strategic location as a gateway to the wider region. With these advantages, the golden visa makes the UAE a compelling destination for investors seeking a secure and residency-friendly environment to grow their wealth.
Having explored the UAE's appeal for investors and family businesses, let's now examine the available options for Family Offices.
While the UAE offers an array of solutions for family offices, we’d like to particularly focus on the offering of:
Abu Dhabi Global Market (“ADGM”);
Dubai International Financial Centre (« DIFC»);
Dubai World Trade Centre (“DWTC”); and
Dubai Multi Commodities Cente (“DMCC”).
ADGM and DIFC: These free zones operate under common law, modelled after the Anglo-Saxon legal system. They boast independent courts staffed by experienced judges familiar with international commercial law. This offers businesses a familiar legal framework and an efficient dispute-resolution process.
DWTC and DMCC: These free zones adhere to civil law, similar to the legal system in mainland Dubai. Disputes arising within these zones fall under the jurisdiction of the local Dubai onshore courts.
This dual system caters to a wider range of investors and businesses. Those seeking a common law environment with established commercial legal principles can choose ADGM or DIFC. Those comfortable with the civil law system can opt for DWTC or DMCC. This flexibility, along with the UAE's strategic location, business-friendly environment, and infrastructure development, is fueling its rise as a global commercial hub and a strong competitor to some of the more mature or traditional global business hubs.
Established in 2015, the ADGM has become a premier financial free zone, offering a world-class business environment. The ADGM provides a regulatory framework that makes it attractive for vehicle establishment. The ADGM's broad range of structures and solutions can be used to optimise family wealth planning and organise family businesses, whether assets and subsidiaries are held in ADGM, UAE or overseas.
Family Offices:A family can form a single family office (“SFO”) in ADGM. The SFO would take the form of a private company limited by shares, and the liability of the shareholders would be limited only up to the shareholders’ capital contribution.
The SFO can provide to the family a variety of services, including wealth management, concierge work, management of the day to day accounting and legal affairs, corporate governance support, and administrative services. The SFOs are, however, not permitted to offer any of these services to any third party other than the family’s own members, entities, businesses, trusts or foundations.
Special Purpose Vehicles (“SPVs”)The SPVs are streamlined companies limited by shares. They can serve as structuring vehicles through which wealth could be held. An SFO can use different SPVs to hold the different assets that the principal family owns, in a manner that limits the risks that one asset can pose to other parts of the SFO’s portfolio.
Unlike businesses with day-to-day operations, SPVs act as passive asset holders and investment vehicles for their shareholders. This means they can hold various assets like stocks, real estate, or intellectual property. SPVs typically lack employees and a physical office, focusing solely on managing investments.
To set up an SPV, companies often use a Company Service Provider (CSP). These providers handle the incorporation process, maintain company records, and offer a registered office address (usually virtual).
Holding and Proprietary Investment Companies (“HoldCos”)A family could hold and administer its private portfolio of assets under a HoldCo, formed in the ADGM. Such HoldCo is an operational company mainly set up for the purpose of holding and making investments on behalf of the shareholders, and not third parties. The HoldCo can have employees (and the accompanying residence visas) and needs to have a physical office space. There is no requirement to appoint a CSP.
Restricted Scope Companies (“RSCs”)Notably, ADGM allows for the establishment of RSCs.
The main benefits of RSCs is that they provide a higher level of privacy and confidentiality than a regular ADGM entity. For example, while on the ADGM Public Register one can view the shareholders and directors of a regular SPV or HoldCo, these details are kept confidential for RSCs. In addition, RSCs are not required to file their annual accounts (or audited accounts) to the ADGM Registration Authority and have generally fewer compliance obligations.
An SFO itself can take the form of an RSC or alternatively have an RSC as a subsidiary, if it meets certain eligibility criteria.
FoundationsFinally, ADGM offers foundations to families and HNWIs. A Foundation is an entity which a founder(s) can endow with assets. It has its own legal personality, separate from its founder(s) and beneficiaries.
The principal family can use a Foundation to channel its charitable activities or to allocate assets for the benefit of certain (e.g. young) beneficiaries. If appointed as a council member, the SFO can monitor and oversee this as well.
The governance of the Foundation is based on the following documents:
Charter: This document outlines the Foundation's essential details, including its name, objectives, purpose, and lifespan.
Bylaws: These bylaws define how the Foundation is governed, makes decisions, functions on a day-to-day basis and who the beneficiaries are.
Generally, the Foundation needs to have council members (who would be the governing body for the Foundation, similar to a board of directors), a guardian (to monitor that the council members are acting in line with the Foundation’s goals and for the benefit of the beneficiaries), and a designee (to avoid a scenario of the Foundation having no beneficiaries). While the applicant would disclose to ADGM the relevant parties in a Foundation, this information is not disclosed on the Public Register.
A Foundation cannot have employees or a physical office space. It is required to appoint a CSP.
General Overview:
Established in Dubai in 2004, the DIFC has become a premier financial hub thanks to its independent regulatory and legal system. This unique structure attracts businesses seeking a secure and transparent environment. DIFC offers companies complete ownership, allowing them full control over their operations. Additionally, it boasts a flexible approach to legal structures, enabling businesses to choose the most suitable framework for their needs. These combined benefits solidify DIFC's position as a leading financial centre.
Family Offices:In an effort to improve governance and private wealth investment and management, the DIFC has restructured its Family Office offering under DIFC Family Arrangements Regulations of 2023 (“DIFC Regs”).
The DIFC Regs reference the business activities that the DIFC family office can conduct in a very broad manner.According to the DIFC Regs, a family office can provide a range of services to one or more families, family entities, family structures or family businesses, as long as it meets the requirements for licensing and registration by the Registrar. These services are listed in Appendix 1 of the Difc Regs and are divided into two parts: Family Office Services (Not Restricted) and Restricted Services.
Family Office Services (Not Restricted) are services that a family office can provide to a single family without being subject to any additional authorization or regulation by the DFSA or any other applicable law. These services include but are not limited to, concierge and personal services, strategic business advisory, technology, tax and wealth planning, investment, risk management, charitable, legal, finance, communications, administration and operations, fiduciary and other services approved by the Registrar.
Restricted Services are services that a family office can provide to more than one family by way of business in or from the DIFC, but only if it is authorized and licensed by the DFSA to carry out such services. These services include accepting deposits, providing credit, dealing in investments, arranging deals in investments, managing assets, advising on financial products, operating a collective investment fund, providing custody, providing trust services, providing fund administration, acting as the trustee of a fund, operating an alternative trading system, providing insurance intermediation, providing insurance management, operating an exchange, operating a clearing house, providing money services, providing credit rating services, and providing Islamic financial service.
The family office can take any legal form, e.g. a company, partnership, or foundation as as long as it is a registered person that is licenced as a family office by the Registrar. A family office does not need a common ancestor, but the family it serves does. A family office must meet the minimum net asset requirement, which is an aggregate net asset value of USD 50,000,000 determined by a fair market value assessment or a book value assessment.
HoldCos: Standard or Prescribed Companies In addition, the family could hold and administer its private portfolio of assets under a HoldCo, formed in the DIFC. The HoldCo is an operational company mainly set up for the purpose of holding and making investments on behalf of the shareholders, and not third parties.
The HoldCo could take the form of a standard company or a prescribed company (subject to certain eligibility criteria).
While the standard HoldCo would be required to secure a physical office in the DIFC and would be subject to full licensing fees, as a prescribed company it could benefit from symbolic license fees and could use the registered address of a DIFC corporate service provider.
FoundationsA DIFC Foundation is a versatile legal entity with separate legal personality, serving various purposes like wealth management, family succession planning, and philanthropic activities.
The establishment process involves founders submitting a comprehensive application to the Registrar, detailing essential information such as objectives, initial capital, and governance structure.
While optional, the appointment of a registered agent streamlines communication with the DIFC, requiring annual account submissions. Guardians, though not obligatory for all Foundations, play a pivotal role in ensuring the fulfilment of objectives, especially in cases of charitable or specified non-charitable purposes.
Regarding physical presence, the Foundation isn't mandated to maintain office space within the DIFC. However, should it opt for this, engaging a corporate service provider becomes imperative to obtain a registered address. This arrangement allows the Foundation to conduct operations efficiently, including the possibility of hiring employees, if required.
The DWTC, functioning as an economic free zone, presents cost-effective and adaptable company formation packages. Therefore, it presents an attractive option to families. There are no mandatory minimum share capital requirements or significant minimum liquid assets requirements. To establish a presence in the DWTC, the board of directors must consist of at least one (1) director and can extend up to a maximum of five (5) directors. Additionally, the company must appoint a company secretary and a general manager, although these roles can be fulfilled by the same individual.
The caters to family wealth management through its SFO and Multi-Family Office (“MFO”) licenses. These licenses make for a good option for families seeking to manage their wealth or collaborate with consultants for comprehensive services. While both licenses offer a wide range of wealth management activities and administrative support, it's important to note there's a minimum asset requirement of AED 500,000 in proven liquid assets that need to be met by the applicant's family. This threshold applies to both SFO and MFO structures.
Beyond family offices, the DWTC also allows for the establishment of holding companies and investment vehicles, providing flexibility for asset organization, geographic diversification, and even attracting external investment.
For completeness, an SFO can also be established in the DMCC. Under the DMCC regime, an SFO activity extends to SFO activity extends to the management of the financial and non-financial affairs of a single family and its members, including the provision of investment advice, wealth planning, asset management, trust and fiduciary services, legal and tax services, and other related services.
To qualify for a DMCC SFO license, the entity must meet specific criteria:
Single Family Definition: The SFO must serve a single family unit, defined as blood relatives or their spouses descended from a common ancestor.
Minimum Assets: The entity must demonstrate a minimum of USD 1 million in readily available investments or assets, verified by a reputable financial institution.
Limited Service Scope: The SFO can only offer services to the single family and its associated entities.
Family Ownership: The SFO must be wholly owned by the entity it serves.
Specific Legal Structure: The company name must include "SFO DMCC," and shares cannot be sold outside the family.
Board Composition: At least one family member must be on the board, with the option for an SFO consultant as an additional member.
Staffing: While external staff can be employed for administrative tasks, professional service providers like investment managers must be qualified and regulated
The DMCC attracts SFOs with its streamlined setup, centralized services, and strategic location
Looking ahead, the combination of the UAE's new personal status laws and its robust corporate structuring regime is expected to further solidify its position as a haven for wealth management. The new personal status laws, with provisions on inheritance rights, prenuptial agreements and family governance, is predicted to attract even more high-net-worth individuals (HNWIs) seeking clarity and stability in their estate planning. Coupled with the flexibility and security offered by structures such as the Family Office, Foundations, Trusts and SPVs, the UAE presents a compelling value proposition for international families and high net worth individuals seeking to preserve and grow their wealth across generations.
A Knight Frank report predicts a significant rise in the UAE's high-net-worth-individuals (HNWIs) by 2026, reaching over 228,000. This represents a 39% increase. With this growing HNWI population, wealth structuring has become increasingly important. Wealth structuring involves strategies to:
Preserve and grow assets: This ensures your wealth weathers economic storms and continues to grow over time.
Pass wealth to future generations: Proper structuring minimizes taxes and legal complexities when passing on your wealth to heirs.
By implementing a well-crafted wealth structuring plan, HNWIs and families in the UAE can achieve their financial goals and ensure a secure future for themselves and their loved ones.
Al Tamimi and Company offer dedicated Private Client Services and a Corporate Structuring Practice with a range of services tailored to the needs of high-net-worth individuals, families, family offices, and family businesses. We provide legal advice and support on various matters, including estate planning, wealth management, succession planning, and family governance. At Al Tamimi & Co we assist with the structuring and protection of assets, ensuring that wealth is managed efficiently and transitions smoothly to future generations. We also support family businesses in corporate structuring, governance, and operational issues, ensuring that the business aligns with the family's objectives and values.
Our expert lawyers remain on hand to advise on and implement the tailored solutions that enhance and preserve private wealth, family ties and business holdings within the region.
[1] Ease of Doing Business World Bank Group 2020.
[2] UAE takes on New York and London in attracting hedge funds | AGBI. https://www.agbi.com/articles/uae-takes-on-new-york-and-london-in-attracting-hedge-funds/#:~:text=The%20UAE%20is%20fast%20emerging,second%20quarter%20of%202023%20alone.
For further information,please contact Izabella Szadkowska, Dipali Maldonado and Sabeeha Moolla.
Published in May 2024
