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Empowering Family Businesses in the UAE: The New Family Business Law

Family businesses have long been the driving force behind the thriving economy in the UAE. It significantly contributes to the growth and prosperity of the country. These businesses could operate without a comprehensive legal framework for governing their operations until recently. However, with the introduction of UAE Federal Decree Law No.37 in 2022, circumstances are different for family businesses.

Also known as the New Family Business Law, this is a groundbreaking legislation that marks a crucial moment for family-owned enterprises. It offers a wide range of provisions to strengthen family businesses in the country.

Facilitating Succession Planning

One of the primary objectives of the New Family Business Law is to support succession planning. Although this is a crucial aspect, family-owned companies tend to overlook the priority. Do you know that less than 15% of family businesses manage to survive into a third generation?

To address this issue, the new law facilitates smoother transitions of businesses between two subsequent generations. As a result, you can expect a more seamless ownership transfer for family businesses and control. It ensures that your family business can continue in the years to come. Forward-thinking enterprises are seeking professional assistance for succession planning for Dubai family offices from established companies.

Exception to Statutory Pre-emption Rules

The New Family Business Law introduces an exception to certain statutory pre-emption rules. This empowers family businesses with greater flexibility to manage their ownership structures. Due to this adjustment, they can create different share classes and allocate the same among shareholders.

Family businesses can also adapt to changing circumstances due to this newfound versatility which caters to their evolving needs. In the process, they can cruise on the path to long-term sustainability.

Effective Mechanisms to Resolve Disputes

The introduction of robust dispute resolution mechanisms is one of the benchmarks of the New Family Business Law. In recent times, public disputes have shed light on the challenges that family-owned companies encounter. This often results in adverse consequences for the concerned business.

To address this issue, the law has established “’Family Business Dispute Resolution Committees”. While the effectiveness of these committees is yet to be seen, this marks a significant step toward preventing and resolving disputes. Historically, these disputes have jeopardised the stability of family businesses.

The New Family Business Law applies across all Emirates and free zones within the UAE. Therefore, family businesses across the country would have access to a consistent legal framework. This promotes fairness in their operations.

For professional assistance in personal holding company formation and management and succession planning, reach out to a professional expert at the IMC Group. We continue to be one of the pioneers in assisting family businesses in the UAE.

The Evolution of Family Offices Towards Greater Professionalization

The concept of family offices has witnessed a profound transformation in recent years. Traditionally, they have been perceived as entities that affluent families entrusted for wealth management. From its basic structure, the model of a single family office in Dubai has evolved into a sophisticated and strategic institution. This professionalism marks a significant shift from the investment perspective regarding how family offices drive investment decisions, manage assets, and explore financial aspects.

In this newsletter, we will take a look into this shift towards the professionalization of family offices. We have also discussed some crucial considerations that family offices need to weigh to secure the wealth of their clients and grow it.

Factors prompting family offices to shift towards better professional standards

Traditionally, affluent families entrusted their financial assets to investment managers. However, investment managers struggled to achieve their target returns amidst economic uncertainties amidst the Global Financial Crisis of 2008 and then the pandemic. Naturally, affluent families started exploring alternative approaches. Consequently, the notion of professionalizing family offices gained traction since the move would empower executives engaged in such work to manage financial assets directly and report the same to family members.

The uncertainties in global markets and low-income returns have led to a decline in the trend of entrusting investment managers to manage the finances of families. This shift has left family offices in pursuit of greater control and peace of mind while consolidating all data in one central location. Naturally, this transition calls for the recruitment of skilled family office executives.

Key factors driving the professionalism of family offices

Let’s take a look at the key factors that have fuelled a higher level of professionalism in family offices in recent years.

1. Higher Complexity

With the global financial landscape becoming increasingly difficult to navigate, it’s imperative to carefully weigh different investment strategies and risks. Exploring complex regulatory environments continues to be a challenge for family offices. The market conditions are changing rapidly, and there is a plethora of asset classes to invest in. These evolving market conditions call for continuous vigilance, which calls for a higher degree of professionalism.

2. Better Expertise

Recognizing the need for specialized knowledge, family offices have been actively recruiting skilled professionals. These include legal experts, financial planners, investment analysts, and technologists. With fresh and relevant talent, family offices can conduct the necessary due diligence to identify emerging trends. This empowers them to capitalize on potential investment opportunities.

3. Advancements in Technology

The investment world has undergone a significant revolution with the digitization of technologies. For instance, family offices have been strategic in using data analytics, machine learning, and artificial intelligence to streamline their decision-making processes. These technologies empower them to evaluate vast datasets and make tactical investment decisions.

4. Exploring Investment Avenues

With adequate family office regulations in place along with growing professionalism, there has been an increasing tendency to explore alternative investments. For instance, expanding the portfolio with investments in real estate, hedge funds, venture capital, and private equity can be lucrative indeed. The return potential of these investments is much higher, but investing in these asset classes involves greater risk and complexity. Therefore, cultivating a risk-resilient approach in family offices requires higher standards of professionalism.

5. Global Perspective

Forward-thinking family offices are now looking beyond domestic markets to explore investment opportunities. This is a broader outlook that requires a deeper understanding of international currencies, markets, and demographic aspects.

Professionalization of the Family Office: Evaluating Risk vs. Reward

Professionalizing family offices comes with a multitude of perks. These include better access to diverse investment opportunities, better risk management, and the opportunity to use sophisticated technologies to make informed decisions. However, it’s crucial to focus on the challenges involved in the process as well. Some of the persisting concerns are equating the risk and reward ratio to optimize returns, align to the respective values and goals of each family, and maintain proper communication between professional staff and family members.

In the coming years, family offices are likely to undergo further professionalization. With the younger generations assuming leadership roles, they are likely to deploy even more tactical investment strategies to ensure greater transparency. Moreover, family offices need to adapt to changing family dynamics. Embracing evolving technologies and adapting to shifting investment trends, they can deliver value to their clients.

Case Study: IMC Group adds value to investments for clients

One of our family office clients invested in a startup focussing on green energy. We were supporting an existing management team that had created a promising business unit.

The Challenge

The management team possessed industry contacts and credibility to establish a new operation but relied on their previous firm’s finance department for financial planning, tax, and other crucial aspects.

Our Solution

We redesigned the group structure of this client and determined the residence location of this company based on practical factors. Next, we secured specific favorable VAT rulings for them. The professionals also came up with financial control mechanisms which encompassed measures for foreign exchange risk mitigation. In the process, we managed all derivative financial trading to support the financial needs of the business.

Results

It took us just three and a half years to put this client on a growth trajectory. Ultimately, it was sold for 23 times the original investment, delivering outstanding results for both the family office and the management team.

How can IMC Group assist you with family office services?

Being an affluent family, you know how demanding wealth management turns out to be. At IMC Group, we deliver comprehensive family office solutions to our clients. We also collaborate with our clients for succession planning for Dubai family offices. A seamless and holistic approach from our end will see you through unique challenges.
Merger Control in the United Arab Emirates What You Need to Know
With its strategic location, business-friendly environment, and openness to foreign investment, the United Arab Emirates (UAE) has become a key market for companies looking to expand their operations in the Middle East. However, businesses considering mergers and acquisitions services in Dubai need to be aware of the country’s merger control legislation and approval requirements.

Legislation and Regulators

The relevant legislation for merger control in the UAE is Federal Law No. 4 of 2012, known as the Competition Law, along with its implementing regulations under Cabinet Resolution No. 37 of 2014. Responsibility for reviewing mergers and acquisitions lies with the Competition Department of the Ministry of Economy.

The Competition Law is still in its early stages, having come into force in 2013. While it is modelled after EU competition law, there remain some gaps that are likely to be clarified through future cabinet resolutions. At present, there is limited precedent on how the law will be interpreted and applied.

Scope of the Legislation

The Competition Law requires parties to notify the authorities of any transaction that results in direct or indirect control of one entity over another, where the merged entity would hold a market share of at least 40%.

Unlike some jurisdictions, the UAE regime does not provide for voluntary notification – if the thresholds are met, notification is mandatory. The law applies to both full and partial acquisitions of interests, though the definition of “control” is not precisely specified.

The notification requirement extends to joint ventures and to transactions taking place abroad that may affect competition in the UAE markets. However, certain sectors like financial services, pharmaceuticals and transport are currently excluded from the scope of the Competition Law.

Assessment Criteria

The Competition Law sets out two main criteria for determining whether a proposed M&A transaction requires approval:

  1. The merged entity must have a market share of at least 40% post-transaction.
  2. The transaction must not adversely impact competition, such as by creating or enhancing a dominant market position.

While the 40% threshold is straightforward, the second substantive test creates some uncertainty. It appears to require a competition assessment even at the initial stage of evaluating whether notification is mandatory. It remains to be seen how this will be applied in practice.

Foreign Investment Considerations

Foreign-to-foreign deals must still be notified if the merged entity has UAE operations or sales exceeding the 40% local market share threshold. Separate approvals from sectoral regulators may also be required for foreign entities operating through local branches.

Regulators can exercise discretion to reject transactions based on public policy or national security factors, separate from competition law.

Strategic Considerations

For companies pursuing M&A opportunities in the UAE, here are some tips:

  • Assess at an early stage whether the 40% threshold will be exceeded to determine if notification is required.
  • Engage advisors to evaluate if a substantive competition assessment may be warranted even below the thresholds.
  • Be mindful of potential shareholding and foreign ownership restrictions in the relevant industry.
  • Involve advisors to coordinate regulatory approvals and navigate discretionary powers of government authorities.
  • Develop a timeline for the transaction that accounts for mandatory notification and approval periods.
  • Be prepared for limited precedents and possible lack of clarity on merger control review processes.

With support from experienced advisors like IMC Group, companies can effectively navigate UAE’s merger control regime. IMC offers comprehensive due diligence services in Dubai to help investors evaluate opportunities, risks and approval requirements for successful M&A execution in the UAE.

New Conditions for Corporate Tax Exemptions in the UAE

The United Arab Emirates (UAE) has introduced additional conditions for investment funds to qualify for tax exemptions, as part of its implementation of the corporate tax regime that began in 2023. The Cabinet announced these new requirements to provide clarity for funds looking to optimise under the new tax system. According to the UAE Ministry of Finance (MoF), the diversity of ownership criteria for funds, excluding Real Estate Investment Trusts (REITs), will be non-binding for the first two financial years after establishment. This provision allows new funds ample time to diversify their ownership structures to comply with the requirements.

For investment funds excluding REITs, the key highlights of the new corporate tax exemption conditions are as follows: The fund should primarily be engaged in investment activities, with non-core revenue not exceeding 5% of total annual revenue. No single investor and its related parties can hold over 30% or 50% ownership interest, depending on the total number of investors. The fund must be overseen by an investment manager with at least three investment professionals, and day-to-day management cannot be controlled by investors.

For REITs, the new conditions include a minimum real estate asset value (excluding land) of AED 100 million. At least 20% of the share capital must be publicly listed or wholly owned by two or more institutional investors. The trust must maintain an average annual real estate asset percentage of at least 70%.

The new regulations aim to ensure that funds benefiting from the tax exemption meet the UAE’s policy objectives around investment activities, investor diversity, governance, and fund management. The Ministry of Finance explains that the rules provide simplicity and flexibility for funds to optimise under the new regime while maintaining the UAE’s position as a leading investment destination.

Fund managers and investors are urged to review their current fund structures and ownership patterns to identify any potential non-compliance with the updated exemption conditions. Key considerations include assessing investor diversification against the defined threshold limits, evaluating the nature and mix of activities to meet core investment business tests, and for REITs, confirming that real estate asset values and share listings meet requirements. Consideration should also be given to the review of fund governance models, including manager credentials, and developing a roadmap to meet these rules within the allowed timeframes. By aligning with these exemption conditions, funds can minimise their corporate tax liability and uphold their value proposition for investors.

Given the novelty and untested nature of these regulations, a professional advisory is crucial for funds seeking to optimise their tax positions. IMC Group, a corporate tax advisory in Dubai, can help funds and investors interpret the new rules, identify areas for alignment, and develop clear strategies to meet compliance obligations while benefiting from exemptions. If you need more information and guidance on implementing robust corporate tax frameworks under the UAE’s new regime, contact IMC today.

New Commercial Agency Law in UAE Offers Improved Flexibility for Foreign Companies

The United Arab Emirates introduced Federal Law No. 3 of 2022 concerning the Regulation of Commercial Agencies on 15th June, ushering in several key changes that make it easier for foreign companies to do business in the country.

The new law replaces Federal Law No. 18 of 1981 and creates a more balanced relationship between commercial agents and foreign principals in the UAE. It broadens the definition of ‘commercial agent’ to include distributors, licensees and franchisees in addition to traditional agents. However, certain conditions must still be met, such as the agent conducting business in one of the categories required for commercial agency practice in the UAE.

Under the new law, the Cabinet can now approve international companies as commercial agents even if they are not owned by UAE nationals, provided the company does not already have an agent in the UAE and the agency is new. This is a significant step forward in enabling foreign companies to enter the UAE market without a local agent.

Commercial agencies in the UAE must still be granted exclusively, either for one or more of the seven emirates or nationally. Certain products and services, such as pharmaceuticals, also still require a registered commercial agent for import. While unregistered agents have no statutory right to exclusivity, this can be negotiated contractually.

Previously, there were limited grounds for terminating a registered commercial agency, but the new law provides more flexibility. Registered agreements can now be terminated by mutual consent, on 12 months’ notice by either party, upon expiry without renewal if 12 months’ notice is given, by court order, or as stipulated in the agreement. However, these new termination provisions will not apply to agencies registered before 15th June 2023 for two years. They will not apply at all to agencies registered for over 10 years or where the agent has invested over AED 100 million.

The new law also provides welcome changes to dispute resolution. While UAE courts retain jurisdiction, agreements can now specify alternative dispute resolution methods, including foreign arbitration, unlike under the previous law.

Conclusion

The new Commercial Agency Law provides a more fair and balanced legal framework for commercial agents and foreign companies in the UAE. However, existing arrangements should be reviewed to understand the implications of the changes. The UAE team at IMC Group has extensive experience advising on commercial agency and related matters in the UAE. Please get in touch for tailored guidance and support.

Important Considerations for M & A in the UAE

The United Arab Emirates (UAE) has emerged as a key market for mergers and acquisitions (M&A) activity in the Middle East, with several high-profile deals in recent years. However, there are some important aspects to consider for M&A transactions in the UAE that differ from other jurisdictions.

Private share sales and asset sales are the most common transaction structures. Share sales are popular as they cause minimal disruption, though due diligence can be challenging due to limited public information. Asset sales allow buyers to choose specific assets and liabilities but transferring assets and employees is logistically difficult.

For private companies, certain approvals are required depending on the target’s activity, such as from education or healthcare authorities. Financial institutions require extensive approvals, especially regarding anti-money laundering and know your customers requirements. If the combined market share of the parties exceeds 40%, merger control approval is needed from the Ministry of Economy.

Public deals require approval from the Securities and Commodities Authority (SCA), the market regulator. The SCA limits break fees in public transactions to 2% of the offer value. Otherwise, break fees are permitted but uncommon in private M&A.

Due diligence focuses heavily on information provided by the seller due to limited public records. Checks on the National Economic Register provide basic details for onshore companies, while DIFC and ADGM registers have more information for companies there. Credit reports from the AECB or Dubai Chamber can indicate financial position. Litigation, tax, employment, intellectual property, data protection and cyber security due diligence rely primarily on seller disclosure. Real estate ownership cannot be publicly searched, so title deeds and leases are also needed from the seller.

Finance comes from a mix of debt, including convertible loans, bank finance and peer-to-peer lending, and equity, such as private equity, venture capital, family offices and IPOs. Advisers typically include lawyers, financial advisers, tax advisers and occasionally pension actuaries. The target can pay adviser costs in private deals but not for public companies due to rules against financial assistance.

Conclusion

M&A in the UAE requires an understanding of the nuances in the legal and regulatory framework. IMC Group offers Transaction Advisory Services UAE and Mergers & Acquisitions Services Dubai to navigate clients through complex transactions. Please get in touch with IMC Group for advice tailored to your requirements.

Estate Planning in the UAE: A Comprehensive Guide for Expats

As Dubai continues to establish itself as a wealth and asset management hotspot in the international finance landscape, it is essential for expatriates and non-Muslims with assets in the region to consider their estate planning options. This article aims to provide a comprehensive guide to the growing importance of the United Arab Emirates (UAE), particularly Dubai and the Dubai International Finance Centre (DIFC), and the various estate planning options available to different communities.

Dubai and the DIFC: A Global Finance Hub

The UAE’s D33 strategy has successfully transformed Dubai into a leading finance centre in the MENA region. The DIFC, a special economic zone within Dubai, has played a crucial role in this transformation, attracting high and ultra-high-net-worth families to establish a presence in the Emirate. With an increasing asset base in Dubai, it is vital for these individuals to incorporate their assets into their global tax and estate plan strategies.

The UAE makes a distinction between Islamic and Non-Islamic individuals when it comes to succession laws. For Muslims, Sharia Law is applied in the absence of a will, while non-Muslims can choose the laws of their nationality to govern the succession of their Emirati assets. In particular, UK expats are afforded the opportunity to apply English law, which offers testamentary freedom and allows for tailored estate planning.

Estate Planning Options for Islamic Clients

For those looking to prepare Sharia-compliant wills, trust structures are commonly used to ensure the estate passes in accordance with Sharia principles. In some cases, individuals may opt for corporate structures or foundations to provide beneficiaries with certainty over their inheritance.

Estate Planning Options for UK Expats (Non-Muslims)

UK expats in the UAE can benefit from applying English law to their Emirati assets, enabling bespoke estate plans that take into account the needs of beneficiaries and potential global taxes. This is particularly important for UK-domiciled and deemed-domiciled individuals who may be subject to UK inheritance tax. Many expats have chosen to structure their global estate through jurisdictions such as the Channel Islands, streamlining their estate planning across multiple jurisdictions while residing in Dubai.

Estate Planning Options for Non-UK Expats (Non-Muslims)

Non-UK, non-Muslim expats in the UAE can also explore alternative estate planning options, such as obtaining UK nationality and electing English law to govern their Emirati assets. This can help circumvent forced heirship laws in their country of origin while allowing for tax-efficient structuring.

Navigating estate planning in the UAE can be complex, but with the right guidance and support from experienced professionals, expats can successfully protect their assets and ensure their wishes are carried out upon their passing. Take help from consultancies such IMC Group to ensure the process is smooth and you get the best guidance navigating the laws.

Corporate Tax is Coming to the UAE – Are You Prepared

On June 1st, 2023, the UAE will introduce a federal corporate tax at a rate of 9% for businesses. This new tax aims to strengthen the UAE’s business environment and meet international standards for tax transparency.

The corporate tax will apply to businesses and corporate entities that make over 375,000 AED in annual profits. For small businesses, profits up to 375,000 AED will remain tax-exempt. Some types of businesses and income are also fully exempt, such as:

  • Individual income unrelated to a business
  • Foreign investors without a UAE business
  • Qualifying free zone entities
  • Capital gains and dividend income from shareholdings
  • Intragroup transactions and restructurings

For businesses subject to the tax, it will be calculated as 9% of their annual taxable profits. For example, if a business makes 4,750,000 AED in profit, it will pay 9,000 AED in corporate tax (4,750,000- 3,750,000 x 9%).

With corporate tax coming soon, now is the time for businesses to prepare. Below are some steps you can take that will help you prepare.

Avoid a AED 10,000 fine by Meeting UAE's Corporate Tax Deadlines. Contact us for Expert Tax Compliance Guidance and Protect your Business.

Register for corporate tax

Businesses must register separately from VAT registration on the FTA website.

Keep accurate financial records

The key to paying the correct amount of tax is having thorough bookkeeping and financial statements that accurately reflect your profits.

Prepare financial statements

The new tax will base your liability on your profit as shown in financial statements like profit and loss accounts and balance sheets.

Get the right advisory

Business management solutions like corporate tax consultants in Dubai to help manage your books, generate accurate financial statements, and file VAT returns – all features that will be invaluable for corporate tax compliance.
Don't attempt to avoid the tax

Any restructuring solely aimed at reducing your tax bill could be considered tax avoidance under the new law and result in penalties.

The new corporate tax law is already in place, and it’s time to take action to ensure a smooth transition for your business. Make sure your financial records are in order, understand how the tax will impact your business, and invest in the tools that will help you comply efficiently. Don’t wait – contact IMC Group today to check your eligibility and receive expert guidance on navigating the new tax landscape.

Private Client Trends in the Middle East

Middle Eastern private client industry is rapidly evolving, showing an increased interest in domestic structuring, ESG/impact investing and family offices. These trends reflect a generational shift in the region as younger individuals recognize the significance of financial security and family governance.

One striking trend in the Middle East is the explosion in domestic structuring. International structuring at offshore finance centres was long the norm; local structuring only recently caught on. A prime example is the recent rapid expansion of DIFC, ADGM and RAK ICC Foundations Regimes which have registered over 550 foundations as of September 2022. These UAE foundations provide unique asset protection features including holding UAE real estate as private wealth vehicles while also functioning as orphan structures allowing asset transfers out of own names, which enables protection and intergenerational planning of assets between generations.

Another notable trend in the Middle East is an increasing interest in impact investing and ESG, particularly among younger family members. This shift is forcing families to reevaluate traditional investment strategies in light of an ever-evolving landscape and adapt accordingly; similarly, their focus on ESG and sustainability influences not only what types of investments they pursue but also their wealth management structures.

Family offices in the Middle East are continually growing more diverse, serving a range of purposes beyond investments. Where once family offices were used primarily as investment vehicles, today they’re being utilized for wealth protection, succession planning, intergenerational planning and governance – reflecting both professionalisation needs within family offices as well as increased demand for services that support such complex structures.

Middle Eastern private client industry presents numerous opportunities, as evidenced by domestic structuring’s increased popularity, impact investing and ESG investing’s increased prominence, and family offices emerging throughout the region. However, as this market develops, it’s essential that families and high-net-worth individuals work alongside experienced advisors to navigate all of the complexities of wealth management.

Families and high-net-worth individuals should enlist the services of an established private client family advisory in Dubai like IMC Group for tailored, expert advice and support. With an understanding of both the region and wealth management complexities, they can help clients take full advantage of all that the Middle East private client market has to offer.

As the Middle Eastern private client industry is continuously developing, it is crucial for families and high-net-worth individuals to remain up-to-date with its trends, working alongside knowledgeable advisors who can navigate its complexities effectively. Domestic structuring, impact investing and ESG strategies as well as family offices present plenty of investment opportunities in this region.

Impact Investing and ESG on the Rise for Middle Eastern Families

New generations of wealthy families and individuals in the Middle East are embracing impact investing and ESG principles, leading to significant changes in investment outlooks and strategies. However, this rise in sustainable and ethical investing has exposed a ‘generation gap’ between family members – with younger generations much keener to put their assets behind responsible causes. Next-gen family members are eager to transform both their investments and family businesses to align with ESG and sustainability goals. These individuals are demanding more diverse portfolios that include impact investments, crypto currencies and other alternative assets.

Domestic Structuring Attracts New Interest

Traditionally, Middle Eastern high-net-worth families have structured their offshore assets through jurisdictions like Singapore and the Caribbean. However, domestic structuring through UAE foundations is now on the rise. The number of foundations registered in the DIFC, ADGM and RAK ICC has grown dramatically in recent years. UAE foundations offer certain advantages like the ability to hold domestic real estate – making them attractive to next-gen family members focused on asset protection and inheritance planning.

Family Offices Becoming More Professional

Alongside overseeing investments, family offices in the Middle East are increasingly being used for planning succession, governance and philanthropy. Next-gen family members seek to professionalise the family office to manage these complex needs. Advisers are seeing greater demand for family office services from multi-family offices and outsourced family office solutions. These provide expertise in managing family wealth, businesses and estates alongside philanthropic goals.

As family priorities shift and investment strategies evolve, tailored family office and family advisory services can help wealthy individuals navigate the complex challenges that impact their wealth, assets and legacy. Experienced advisers can provide custom structures, governance solutions and expertise – ensuring family values and visions are translated into strategies that bolster financial security for generations to come. The rise of impact investing and other trends show that a new era has dawned on private clients in the Middle East.

Private Client and Family Advisory services can provide invaluable support to high-net-worth individuals and families seeking to navigate complex financial and legacy challenges. IMC Group offers customized solutions tailored to your unique needs and goals, with a focus on long-term financial security and impact investing.

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