As a hub for cross-border trade and financial services, as well as an important market in the oil and gas industry, the UAE has become home to numerous ultra-high-capital residents as well as family conglomerates. In this article, we look at what the UAE offers for money management and asset protection.
The United Arab Emirates, and in particular the Dubai International Financial Center (DIFC), which is the financial free zone of Dubai, has become home to a number of leading asset and capital management professionals serving the needs of its local and foreign clients.
In the Emirates, there are no taxes on personal and corporate income, both at the federal level and at the level of individual emirates, with the exception of taxes on income at the level of the Emirates on oil producing companies and on foreign banks. There is also no currency control when transferring funds. In addition, the UAE has relatively low import tariffs and almost no restrictions on foreign trade.
The Emirates are considered one of the most secure and politically stable countries in the region, and, accordingly, are considered as a safe haven for investment, as well as a place for tourists.
An important plus of the UAE is the ease of transferring money to and from the country.
A company in the Emirates can be used to pay and receive royalties, dividends or interest. Also, UAE companies can take advantage of the extensive network of treaties for the avoidance of double taxation.
The Emirates have signed double tax treaties with more than 60 jurisdictions, for example, Hong Kong, China, Japan, Singapore, Mauritius, Switzerland, Ireland, Seychelles, Cyprus. Thanks to these agreements, when obtaining the status of a UAE tax resident, investments can be structured in a tax-efficient way.
Structuring assets, including through the registration of an offshore company in the UAE
UAE courts generally recognize properly created foreign trusts in accordance with the laws of a foreign jurisdiction. A trust can also be created on the basis of the DIFC law (which is based on the principles of English common law).
To provide clarity for succession planning, many structure asset ownership through corporate mechanisms. Another option is to create a foreign company to own assets in the UAE to avoid applying the laws of the UAE on inheritance and to be able to effectively foreign distribution of assets located in the UAE.
The emirate of Dubai permits the registration of real estate in the name of offshore companies established in the Jebel Ali free zone, subject to thorough verification and compliance with the requirements of “know your client.” To such a company owned property in Dubai, you must obtain permission from the Land Department of Dubai.
If such a structure is used, the shares of such an offshore company may, in turn, belong to a foreign offshore company, for example, a company registered in the British Virgin Islands. Any transfer of ownership of assets in the UAE, controlled through such a structure, may occur offshore, but such transfer may result in fees if such assets include real estate.
Consider registering an offshore company in the UAE in Ajman, or registering an offshore company in the UAE in Ras al-Khaimah. You can open these offshore companies without a personal visit to the Emirates.
For real estate located on the territory of DIFC, it is allowed to own real estate on behalf of an offshore company or trust. To do this, the investor must fulfill the requirements of “Due diligence” of the Real Estate Registrar DIFC. This procedure may also include disclosure of information about the beneficial owner of the property.
The DIFC Act 4/2007, as amended by Act 4/2012 (the DIFC Real Estate Act), stipulates that the transfer of shares to a company not listed should fall within the definition of “transfer of assets” and accordingly entails
- payment of fees for “transfer of assets” (currently it is 5% of the maximum price or of the market price); and
- application for transfer to the Registrar of Real Estate DIFC.
It is worth noting that the transfer of the real estate, which is restructuring, for example, transfer from an individual to a legal entity that is wholly owned by such an individual does not entail payment of the fee for “transfer of assets”, but still requires an application to the DIFC.
After registering a company in the UAE, regulation, and supervision of companies in the UAE outside the DIFC are usually carried out in such a way that no interference in the affairs of companies takes place. The relevant regulator will inquire about the affairs of the company if it suspects that illegal activities are conducted or if the company does not renew its annual license or rental agreement.
When registering a company in the UAE, we will also help with the rental office in the UAE.
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Practically the only cases when it is necessary to apply to regulators are corporate actions, such as changing directors, managers, shareholders or changes in constituent documents or share capital.
The administration of each free zone creates its own level of regulatory requirements and usually, these administrations do not interfere in the affairs of companies registered within their jurisdictions. However, it should be noted that companies registered with DIFC, and especially those regulated by the Dubai Financial Services Authority (this is an independent regulator for DIFC), are subject to significant reporting requirements that are strictly followed.
Obtaining a UAE residence visa when registering a company in the UAE
A foreign investor can become a resident of the UAE by registering a company in the UAE. Moreover, the company for this can be registered also in one of the free zones of the Emirates, such a company also allows you to get resident visas to the UAE. To obtain a visa, a foreign investor will have to enter into an employment contract with such a company.
To maintain a UAE resident visa, a resident must return to the Emirates within six months of departure. There are no other requirements for maintaining the status of a resident of the Emirates.
Upon receipt of the UAE resident visa, you can also later become the holder of the UAE tax resident certificate.
Inheritance in the UAE. How to transfer a company registered in the UAE and assets by inheritance?
In accordance with UAE law, inheritance is regulated by Federal Law 5/1985 (Civil Code), Law 28/2005 (Personal Status Law), and in certain cases by the rules of the DIFC Registry of wills.
All inheritance issues in the UAE are dealt with by the Sharia courts or the DIFC. The Sharia courts apply the principles of the Islamic Sharia, in turn, the DIFC does not apply these principles.
Article 17 of the Civil Code states that in matters relating to real estate, the law of the Emirates must necessarily apply to wills. The law should apply to the wills of foreigners who dispose of their property located in the UAE.
Article 1 of the Personal Status Law states that a person who is a resident of the Emirates at the time of his death may in advance ask to avoid the application of the Personal Status Law, and therefore avoid the rules that this Law prescribes in relation to a fixed proportion of property sharing for the heirs of the deceased. The article provides that the law should apply to citizens of the Emirates, except for cases when for non-Muslims among them special provisions apply to their community or denomination. The law should equally apply to non-citizens of the UAE, except in cases where a non-citizen requests the application of his law.
However, the Personal Status Law does not directly amend the Civil Code and, accordingly, it remains ambiguous whether a non-Muslim foreigner can ask to avoid the application of Shari’a principles regarding the inheritance of real estate placed in the Emirates, except for using the DIFC.
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The problem with real estate is that even if the deceased left a will, it can be challenged by the heirs of the deceased on the grounds that the will not be made in accordance with the Shari’ah contradicts the provisions of Article 17 of the Civil Code.
Article 17 assumes that in respect of movable property, inheritance must be governed by the law of the jurisdiction of the testator’s origin (for foreigners, this will usually be their country of nationality if they have only one passport).
Accordingly, with respect to movable assets, such as securities, shares, for example, funds in a bank account, it is permissible for a non-Muslim foreigner to provide for the transfer of movable assets in the manner chosen by him.
When registering a company in the UAE, we will help with opening a corporate bank account in the UAE.
To avoid uncertainty, foreigners who are not Muslims prefer to own real estate in the Emirates through corporate structures, thus avoiding the application of the Sharia law to the inheritance of the real estate.
In addition, non-Muslims can use the DIFC will register. This DIFC will registry allows non-Muslims who have reached the age of 22 and have assets located within the Dubai Emirate to compile and register a will with respect to these assets. The wills that are registered in the DIFC Will Register are interpreted and regulated in accordance with the rules of the DIFC Will Registry.
Testaments prepared for registration in the DIFC will register shall be drawn up in accordance with the established rules of the DIFC Will Register, which provide the recommended form of wills. In addition, these wills must be signed before the official of the DIFC will register and then in electronic form must be entered into the system of the DIFC will registry. The person who made the will (testator) will have to appoint one or several administrators for his will. According to the rules, the administrator is responsible for the distribution of assets of the testator in accordance with the terms of the will. When registering a will, a fee of 10,000 dirhams ($ 2,730) is charged.
After registration, the terms of the will be enforced by the DIFC Courts. DIFC court decisions must, in accordance with the law of the UAE, be enforced by the UAE Courts. It is envisaged that other government agencies in Dubai, such as the Department of Economic Development, for assets, such as company shares, or the Land Department for real estate, will have to comply with resolutions ratified by the Dubai Courts. It is expected that ultimately, the various government departments will adopt the orders of the DIFC Courts directly, thus avoiding the need to ratify the orders of the DIFC Courts in the Dubai Courts.