Changing times - How foundations are changing private wealth management in the UAE07 Feb 2019
Following last year's introduction of a Foundations Law in the Dubai International Finance Centre (DIFC) and 2017's regulations in the Abu Dhabi Global Market (ADGM), Client Director for the Middle East, Chris Rebindaine, examines how wealthy families in the UAE now have local solutions for managing their wealth, assets and succession plans.
The new legislative developments facilitating wealth management have come at an apt time for Gulf Cooperation Council (GCC) countries. There is an estimated $1 trillion - purely in onshore assets - expected to be passed from second generation business families to millennials within the next 10 years, and less than one regional family out of six has a legacy plan in place.* As a result of this demonstrable need, if delivered sympathetically the new foundation regimes can serve a necessary function for regionally based strategic assets.
Traditionally, the handling of private wealth in the UAE has been embedded in a culture of ultimate discretion. Many wealthy and entrepreneurial families would purposefully leave the country to conduct their private business, utilising offshore trusts and foundations to preserve wealth and reinforce inter-generational continuity over their foreign assets. Locally, however, it was not legally possible nor culturally acceptable to make arrangements considered entirely normal in many other parts of the world.
Given the heavy reliance in the local economies to a number of major family owned businesses, the two main Emirati governments wish to facilitate change and self-governance whilst also accommodating the requirements of wealthy entrepreneurs attracted to the region.
Foundations for the future
Following the creation of foundation regimes in ADGM (August 2017) and the DIFC (March 2018), wealthy families and entrepreneurs resident in the UAE will now be able to manage their wealth using a local solution. This raises the prospect of an orderly transition of significant assets between generations, a transition that has not previously been possible. You can read our article explaining DIFC foundations here.
The main beneficiaries of the new laws include:
- Multi-generational families needing assistance passing down local business and real estate assets.
- Individuals or families with philanthropic objectives.
- High net worth individuals (HNWIs) with assets located around the world.
- Companies or family offices wishing to restructure.
The new laws follow a review of best practice and models in other leading jurisdictions such as Liechtenstein, Jersey, Guernsey and the Netherlands. The legal system on which the new laws are founded is also internationally familiar, with ADGM civil and commercial laws largely based on the laws of England and Wales, and the DIFC referring to English law in case of ambiguity.
The real issue
One of the most important sectors assisted by the recent revolution of structuring options is onshore real estate. Previously clouded with probate problems, individuals are now able to hold onshore assets through a combination of ADGM/DIFC foundations and SPVs, with a number of Memorandums of Understanding (MOU) in place between onshore authorities and the ADGM and DIFC. Consequently, there is expected to be a move away from the old JAFZA/BVI holding regime by expatriates owning property in free zone areas.
This new revelation will enable UAE residents to include local real estate assets in their legacy planning, rather than only relating to overseas assets. This method is set to prove popular; as the 2018 GCC Wealth Insight Report indicates, an increasing amount of HNWIs are keeping their assets closer to home, rotating them into real estate.
Ownership and the control of personal assets have always been closely entwined with local UAE culture. In the DIFC, a trust framework has already been established through the Trusts Law 2005 (DIFC), which has received a number of enhancements in recent years.
However, rather than handing over 'control' of their assets as is customary with trusts, foundations present a preferential alternative. They provide the asset owner with an additional degree of comfort in knowing they can sit on the foundation council and determine how their wealth and assets are managed.
Other benefits of foundations include:
- Family involvement
- Maintain family ties for geographically diverse families and/or assets
- Facilitate succession
- Separate legal personality
- Robust governance structure
- Facilitate philanthropy
Families resident in, and with large assets in the UAE, should seek professional advice as to what opportunities are now available to provide formal succession planning. All advisors and professional firms will need to learn how to work with the new laws in conjunction with existing 'onshore' UAE legislation that applies to real estate, commercial and contract law.
A modern state
In a bid to attract business and wealth to the region, the move to introduce foundations to both the DIFC and ADGM signifies a further enhancement of foreign ownership laws within the UAE. The ability of families to undertake succession planning and protect their assets locally adds another layer of efficiency to the region, cementing the DIFC and ADGM as vehicles championing the UAE as a location ripe for business.
* (Source: The Gulf Family Business Council)
Ocorian is able to provide full foundation establishment and administration services tailored to clients’ specific needs and objectives in DIFC and ADGM. Learn more about our Private Client offering here.