The UAE cabinet, headed by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Ruler of Dubai approved the issuance of a new Federal Decree-Law on Financial Covenants. The law provides a legislative framework that will regulate and boost the country’s wealth management sector and help protect investors and attract foreign investment.
The Federal Decree is an innovative and future-oriented legislative framework accommodating the needs and expectations of both family business owners and other business owners and investors.
The onshore trust law comes in the support and enhancement of the growing wealth management sector in the country. It will act as an integrated system for companies and individuals owning various capital and financial rights and willing to hand their wealth over as a financial covenant to a trust managed by competent and qualified persons or institutions, well versed with various investment patterns and risks due to lack of money management expertise and enough time.
Family-owned businesses, the socio economic cornerstones in the UAE for many years will be the top beneficiaries of the Decree-law as the founders and owners of these companies and businesses, will be able to develop long term stable and sustainable plans for the protection and succession planning of their companies’ assets.
Family business owners are often faced with issues related to the family business continuity and succession, and the Federal Decree will provide solutions to these issues.
Besides the family business, the legislation will also promote the investment infrastructure in the UAE as an additional financial tool for financing and investment in the hands of the investors.
The Decree-Law will help in establishing trust structures onshore as a basis of company and asset holding arrangements similar to the types available in common law jurisdictions such as the UK, Jersey, BVI and Cayman, and protect the wealth of family-owned businesses.
The Federal Decree includes various types of covenants with specific purposes, such as a ” Charitable Trust” created for charitable purposes, or a private trust created to deal in securities and financial markets or for establishing retirement funds or ensuring that benefits are provided to the beneficiaries in exchange of regular contributions paid for the covenant.
Financial Free Zones, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market are excluded from implementing the provisions of the Decree-Law as these zones already have trust laws and their legislations.
The law also highlights the ” bond covenant ” and its importance as the basic document that includes all terms and conditions such as the beneficiary, the conditions for dealing in funds, the method for appointing, removing and replacing the trustee, the effects of termination of the covenant, method of appointing the guard of the covenant with details of executive powers and ways to increase the covenant funds.
The Decree-Law emphasizes a forward-looking initiative of the UAE cabinet to create a competitive business climate and expand the legal framework to serve business owners and attract foreign investors.