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Family Office Regulations in the UAE

Family Office Regulations in the UAE

Family Office Regulations in the UAE

Last Updated on July 12, 2021

  

A family business is defined as a private business entity with skilled professionals capable of assisting a family with overall business and financial administration including investment management, taxation, real estate planning etc. and enable the family members to protect and grow family wealth and achieve long term financial objectives. Two or more members hailing from the same family are the major business owners with the controls lying within the family itself.

The family offices are the oldest form of business in human history and were born out of necessity since the beginning of modern civilization. During the 19th century, the modern family offices of today were conceptualized and gradually developed. While J. P. Morgan, the New York based banker, founded the House of Morgan to manage his family wealth somewhere during the middle of 1800; John. D. Rockefeller the business magnate of America established his family office in 1882.

Essentially, Family offices are privately managed entities involved in the wealth management of Ultra High Networth Individuals by providing unique financial solutions. While investment management is the primary function, family offices also carry out other activities such as managing accounts and payrolls, complying with regulatory requirements, tax filing, managing charities, lifestyle management, risk management and succession planning.

The UAE plays a critical role as the top investment hub in the GCC region and many UAE businesses and investments are family-owned. The family businesses in middle eastern countries are relatively younger compared to Europe and the U.S and until recently the majority of them didn’t have any succession plan. However, there has been a sudden shift in focus amongst family businesses now and the family offices have become the most rapidly growing business vehicle in the country’s leading free zones.

Establishing family offices in the UAE must comply with the legal and other regulatory frameworks stipulated by the government and the free zones including ADGM, DIFC and DMCC have their own sets of rules and regulations in terms of minimum paid-up capital requirements, compliance and reporting requirements and criteria for family members.

Neither of these three zones imposes any tax on corporate income or capital gains of the family offices. Providing asset and wealth management services are also allowed in these free zones.

For streamlining the affairs of family offices, DMCC now accepts wealth, assets and legal affairs management of a single family and also provides administrative services. DMCC company formation allows family offices to be owned by a single family with descendants from a single ancestor. It doesn’t allow family offices to provide services to third parties as investment advisors.

Dubai family ownership law was amended in August 2020 allowing families in the Emirate to enter a family ownership contract to appropriately structure the family’s assets in both immovable and movable forms. All company shares except those in listed companies can be included in such contract and with the maximum duration of the contract to be 15 years. This contract is an important step towards the protection of family wealth and continuity of family-owned businesses making DIFC company formation an ideal solution for family offices.

Irrespective of its size and the nature of resources it employs, a family office must prioritise safeguarding the interests of the family by managing and protecting the family’s wealth with smooth, successful and dispute free transfer of family wealth to the next generations.

The UAE has recently witnessed tremendous legal and regulatory changes in the private wealth space. There is huge private wealth concentrated in the Middle East and family-owned businesses play a very crucial role in the economic activity and future growth prospects in the region. The successful transition of wealth to the next generations thus becomes extremely critical.


  

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