Ian Rumens, Head of Private Client – Jersey, and Lynda O Mahoney, Global Head of Business Development, recently met with several intermediaries and senior members of Family Offices in the Middle East.
During their trip, Ian and Lynda discussed how family businesses are structuring their affairs in light of recent local and international developments.
Below they share their insights and findings from the trip:
What are the key forces shaping the way families structure their business affairs?
1. New local Kingdom of Saudi Arabia companies' law
The focus on governance in the new companies' law is prompting family businesses to reassess their global holding structures and local structures in the Kingdom. The law aims to modernise and simplify the corporate code, increase flexibility, and attract inward investment.
2. International legislation & regulation
Global initiatives such as Pillar 2, BEPS (Base Erosion and Profit Shifting), global minimum taxation, and amendments to the Proceeds of Crime legislation impact family businesses in terms of transparency and compliance. These developments require families to adapt their structures to meet regulatory requirements.
3. Evolution & direction of local and international taxation
Changes in UAE corporate tax and the implementation of Global Minimum Standards impact family businesses' tax planning strategies, and they must ensure they are complying with new tax regulations.
Geopolitical factors, including the possibility of future sanctions, are influencing decision-making processes, as families in the region are looking to hedge their structures against potential risks and ensure stability.
What are the impacts of these forces on family business structures?
1. Segregation of assets
Family businesses are increasingly separating business and personal assets, both domestically and internationally. This practice demonstrates good governance and makes it easier for businesses to attract investment, list on exchanges, or enter partnerships or club deals.
2. Professionalisation of the family office
Family offices are becoming more professionalised to attract and retain talent. The new Saudi companies' law specifically supports the incentivisation of talent within companies, leading to the potential growth of employee incentive schemes and improved management practices.
With professionalising, comes outsourcing. Recent research commissioned by Ocorian found that 91% of family offices asked predicted an increase in the outsourcing of key services to third party service providers. Family Offices want to concentrate on their core business and investment strategies, leaving the legal structures to the experts.
3. Restructuring of existing structures
In a more transparent world, complex and unnecessary layers of special purpose vehicles (SPVs) in multi-jurisdictional structures are being simplified. This streamlining reduces costs, addresses governance concerns, and minimises the global data footprint.
4. Diversification of international investments & utilisation of new structures
Family businesses are diversifying their international investments and utilising new institutional style structures such as Private Funds and Cell Companies to optimise their investment strategies and achieve desired outcomes.
5. Migration of structures
There is a trend among both institutional and family-owned structures to migrate to top-tier jurisdictions like Jersey and Guernsey due to concerns over reputation, attracting joint venture investors, and accessing financial services.
The new Saudi companies' law allows family businesses to incorporate family governance documents into their legal construct, providing transparency and security to the wider family. This inclusion in the articles of association assists in regulating ownership, governance, management, work policies, employment of relatives, and profit distribution.
What are our key takeaways?
In the Middle East, family businesses are being driven to adopt stronger governance practices, professionalise operations, simplify structures and address family governance issues. This is crucial for ensuring the long-term sustainability, stability, and success of these businesses in the region.
Families are conducting assessments of their current situation regarding local and international assets, investments, and businesses. These assessments are shedding light on long-standing issues that require attention. Traditionally, family offices in the region have operated with a single decision-maker structure and viewed generational wealth as inherited, leading to a conservative mindset of maintaining the business legacy and core values. However, with the increasing involvement of third-generation family members, there is a greater openness to diversification and non-traditional investment strategies.
How can Ocorian help?
Our primary focus in the Middle East is working with families, assisting them in setting up and supporting family offices, and structuring their wealth. We also collaborate with managers, including those based in Europe and the US, who are seeking investors. This link is important as it involves professionalising the family office and aligning with the requirements of international co-investors or managers.