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Developments in Estate and Succession Planning

Developments in Estate and Succession Planning in the UAE: An Overview

The United Arab Emirates (UAE) has experienced a dramatic shift in the legal and regulatory landscape in the private wealth area with the advent of the Dubai International Financial Centre (DIFC) Wills and Trust and Foundation regimes.

There may impact how ultra-high net worth people (UHNWIs) in the area seek to pass their money to the next generation since the UAE is a prominent investment centre in the region. The smooth transfer of wealth to the next generation is critical in the Middle East, where private wealth is concentrated, and family-owned firms play an essential role. Some of the recent legislative and regulatory developments in the United Arab Emirates (UAE) are examined in this article, and the implications for wealth and succession planning in the Middle East are discussed.

  • Law on Family-Owned Business

In 2020, Dubai’s family ownership legislation has made significant development. President and Prime Minister Sheikh Mohammed bin Rashid Al Maktoum of the United Arab Emirates have signed Dubai’s Family-owned Business Law No. 9 of 2020 (the “Law”). It will take effect as soon as the legislation is published in the Official Gazette. The law’s goal is to provide families with financial security, increase the economic and social contributions made by family enterprises, and promote the expansion of existing family firms.

  • Exceptions

The Law applies to new and existing family enterprises, including corporate equity shares and proprietorship. Still, it does not apply to family ownership in public joint-stock corporations or movable and immovable property.

  • What does it cover?

The Law will offer a legal foundation for family enterprises’ internal operations once implemented. It governs family ownership contracts, the structure and administration of the firm, the rights and constraints of management, and the establishment of the board of directors, as well as the obligations entrusted to it. It also outlines the government’s responsibility to assist in the creation of family enterprises.

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  • Requirements for the establishment of family ownership contract

The Law establishes the requirements for a legally enforceable family ownership contract. The first criteria are that all contract parties be members of the same family and have the same interest. The agreement must also explicitly describe each member’s share, and parties must hold all legal rights to the cash and assets covered by the contract. If these prerequisites are satisfied, the contract must also be officially certified by a notary public following Dubai law.

    1. Full foreign ownership:

Foreigners are authorized to incorporate firms with 100 per cent complete ownership, based on the requirements of Federal Decree-Law No. 26 of 2020, revising the provisions of Federal Law No. 2 of 2015 on Commercial Companies. The legislation annuls the need for commercial businesses to have a main Emirati shareholder or agent, therefore, giving complete foreign ownership to non-Emiratis of all nationalities of onshore firms founded by them. In addition, corporations intending to become joint-stock companies may, following the permission of appropriate authorities, sell via IPOs, no more than 70 per cent of the company, instead of the prior 30 per cent restriction.

UAE Federal Decree-Law No. 26 of 2020 amends the UAE Federal Law No. 2 of 2015 on Commercial Companies, limiting foreign shareholders to a maximum of 49 per cent ownership in a ‘limited liability company (LLC) doing onshore UAE operations. As a result, an Emirati person or a 100% Emirati-owned corporation was needed to possess a 51 per cent stake as a local sponsor. The modified legislation now permits natural and legal individuals to create businesses without requiring them to be of a specific nationality. However, it will not apply to some established companies by Cabinet decisions or businesses completely controlled by federal, state, or municipal governments or their subsidiaries.

   2. UAE Personal Status Law Amendments:

Along with business-friendly laws, the UAE has pledged to update family law to entice foreign citizens further to settle and establish enterprises in the country. The UAE most recently proposed extensive reforms to Personal Status Law in November 2020, including the interpretation of inheritance rules.

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  • Under Old UAE Personal Status Law

Previously, UAE law mandated that the deceased’s inheritance be divided according to Sharia Law regardless of nationality or religious affiliation. It has resulted in incidents where bank accounts have been stopped, and children’s guardianship and wealth distribution have been given under Sharia Law rather than the deceased’s desires. To prevent such scenarios, non-Muslim citizens began opting for non-Muslim wills that guaranteed their intentions were carried out.

  • Under New Amended UAE Personal Status Law

Non-Muslim residents no longer need a will, according to legislation approved in 2020 that automatically distributes an individual’s possessions following the inheritance rules of their country of citizenship. According to Sharia Legislation, it is no longer acceptable for local courts to distribute a resident’s assets when they are residents of countries in which this law does not exist. Unless a will has been recorded in the United Arab Emirates, UAE real estate will remain subject to UAE law. Individuals and families from outside the GCC may be more inclined to keep their assets in the UAE and take advantage of the country’s private wealth structures due to these modifications.

This article aims to provide a general overview of the subject. The information included herein may not be appropriate in all circumstances and should not be relied upon without seeking specialized legal counsel based on specific cases.

For more information, please don’t hesitate to contact us today.

Hazim Darwish

Hazim Darwish, is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Hazim Darwish also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators.