No taxes are currently imposed on individual income in the UAE, and there are no estate taxes or taxes relating to trusts and foundations.

There are two types of taxes in the United Arab Emirates:

• excise tax; and
• VAT.

Excise Tax

The UAE implemented excise tax in 2017 as an indirect tax levied on goods that the government considers harmful to health or the environment, such as tobacco products and carbonated and energy drinks. It is imposed at the following rates:

• 50% of the specific goods’ sales price for carbonated drinks and sweetened drinks; and
• 100% for tobacco products and energy drinks.

Excise tax is applicable for any business engaged in:

• the import of excise goods into the UAE;
• the production of excise goods released for consumption in the UAE;
• the stockpiling of excise goods in the UAE; and
• overseeing an excise warehouse or designated zone.

The designated free zones that are considered as being "outside of the UAE" are also liable to pay excise tax. Online returns have to be filed regularly, before the 15th day of every month.

VAT

VAT on goods and services sold to consumers was introduced in January 2018 at 5% of the sales prices of goods and services (although some goods and services are exempt). The VAT applicable to the purchase and export of goods/services must be applied according to the requirements and procedures determined by the Federal Tax Authority (FTA).

For UAE resident businesses, the mandatory VAT registration threshold is AED375,000, while the voluntary threshold is AED187,500. Both apply to businesses with taxable supplies and imports that exceed these thresholds in the previous 12 months or are expected to exceed these in the next 30 days. Foreign businesses can recover the VAT they incur when visiting the UAE.

VAT has to be levied equally by tax-registered businesses licensed in the UAE mainland (onshore) and by businesses licensed in the various UAE free zones (offshore). However, some relief is given to companies located in specific free zones defined as "designated zones" by the UAE Cabinet. The transfer of goods and services within and between the designated zones is tax-free (see Cabinet Decision No 59 of 2017 on Designated Zones for the purposes of the Federal Decree-Law No 8 of 2017 on Value Added Tax). Taxable businesses must file online VAT returns with the FTA (either monthly or quarterly, depending on type and size of the business).

Individual Tax

There is no income tax in the UAE. The UAE has signed bilateral double taxation agreements (DTAs) with approximately 137 countries, to help eliminate double taxation that would otherwise have been imposed on an individual who is considered a tax resident of more than one country at the same time.

Other Taxes

There are no automatic taxes imposed on the estate of a deceased individual in the UAE, nor on their beneficiaries. There is no inheritance tax or gift tax.

However, the recipient of an inheritance of immovable property located in the UAE must pay a (minimal) government transfer fee at the time the property transfer is registered at the respective Land Department. The Dubai Land Department, for example, specifies that a "gifting" procedure can take place between first and second degree relatives (eg, parents, children, spouses), and a minimal fee of 0.125% of the value of the property applies. The transfer fee under the "gifting" procedure varies between the emirates. For property gifts to non-family members, the usual 4% fee applies.

The transfer of all other assets by inheritance and donation are not subject to a transfer fee. There are no other taxes on death or lifetime gifts.

The UAE does not have gift tax, so there are no associated exemptions. There are no foreseeable plans to introduce personal income or capital gain tax for individuals, but the Ministry of Finance has announced that the UAE will introduce corporate tax at 9% on business profits exceeding a yearly profit threshold of AED375,000. This tax comes into effect for the financial year beginning 1 June 2023.

The UAE currently does not levy any tax on income, so there is no need for an income tax return in the UAE as there is no applicable individual tax within the country. The same also applies to freelancers and self-employed individuals who are residents of the Emirates.

Real estate or other assets located in the UAE or overseas belonging to both UAE residents and non-residents are not subject to tax. Due to the limited and advantageous taxation regime, there is no real estate holding structure applicable to optimise the income tax situation of a UAE property owner. Real estate holding structures in the UAE are usually set up for reasons other than tax.

Real estate or other assets located in the UAE or overseas that belong to UAE citizens/residents are not subject to tax in the UAE. Real estate holding structures in the UAE are usually set up for other reasons, aside from tax. As far as is known, there are no government plans to introduce any inheritance, gift or wealth tax, nor individual capital gains taxation in the UAE in the near future.

The UAE has signed up to the OECD Common Reporting Standard (CRS) standard, which was adopted in the UAE as of 1 January 2017. UAE regulatory authorities and the UAE Ministry of Finance have issued UAE CRS legislation to implement the CRS into domestic law. The following authorities have been appointed as "regulatory authorities" for the purposes of implementing the provisions of the CRS and the Multilateral Administrative Agreement for the automatic exchange of information:

• the UAE Central Bank, in respect of a financial institution that is subject to its supervision under the applicable laws and regulations;
• the Securities and Commodities Authority (SCA), in respect of a financial institution that is subject to its supervision under the applicable laws and regulations;
• financial free zone authorities of specific free zones, which have been designated as "regulatory authorities" in respect of a financial institution that is registered in such financial free zone – ie, the Financial Services Regulatory Authority (FSRA) in Abu Dhabi Global Market (ADGM)and the Dubai Financial Services Authority (DFSA) in the Dubai International Financial Centre (DIFC); and
• the Ministry of Finance, in respect of any financial institution that is not otherwise regulated by any of the aforementioned regulatory authorities.

EU DAC6

EU Council Directive 2011/16 in relation to cross-border tax arrangements, known as DAC6, has been in force since 25 June 2018 and applies to cross-border tax arrangements that meet one or more specified criteria (hallmarks) and concern either more than one EU country or an EU country and a non-EU country. UAE-based individuals and companies have to assume that they may be affected by this EU disclosure regime in certain circumstances.

For transactions into or within the EU, advisers to UAE-based individuals and companies are mostly obliged to make a disclosure to EU tax authorities. The EU removed the UAE from its list of non-co-operative jurisdictions (the tax "blacklist"), due to the UAE’s implementation of economic substance regulations (through Resolution No 31 of 2019) and subsequent guidance designed to help businesses comply with those requirements.

Foreign Account Tax Compliance Act (FATCA)

On 17 June 2015, the UAE signed a Model 1B Intergovernmental Agreement with the USA (the UAE-US IGA) to improve international tax compliance and implement FATCA; the agreement was ratified by Federal Decree 9 of 2016. The UAE thereby adopted rules to identify and report information about US accounts that meet the standards as set out in the UAE-US IGA, with the Ministry of Finance stating that “Reporting UAE FIs are required to identify financial accounts that are held by either Specified US Persons or Passive NFFEs with one or more Controlling Persons who are Specified US Persons, and report certain financial account information to their Regulatory Authority.”

According to confirmed statistics, more than 85% of the economy within the Gulf Cooperation Council (GCC) countries is controlled by family businesses, and they are usually large families.

Sharia

Succession planning according to the agreed cultural norms in the UAE (and the GCC) is based on the Sharia forced heirship regime. In the UAE, the principles of succession are included in the UAE Personal Status Law 28 of 2008, which is a codified civil law that includes elements and principles of Islamic Sharia. The Sharia inheritance rules at times may contribute to the dissolution of family businesses, for example, because of the allocation of shares to the Sharia heirs. Therefore, families in the UAE have started to realise the importance of succession planning, as a number of wealthy families experienced the undesired fragmentation their wealth due to contentious claims during the generational transition. The continuity of the family business came at a risk so family business continuation and succession planning became key concerns for the UAE legislators.

Corporate Structures

Previously, local and resident family businesses had only the corporate structures (including the separation of holding and operating companies) as tools for succession planning and ownership transfer of the business from one generation to another, to increase their chances of survival into the future generations. This tool worked for some families but did not fit all, and it came with several limitations and restrictions.

The recently enacted Dubai Law No 9 of 2020 Regulating Family Business Ownership and the Abu Dhabi Law No 9 of 2021 for Family Business Ownership Governance both enable corporate solutions for family businesses to overcome the legal limitations of existing corporate vehicles and provide an effective method for creating investment vehicles. Trusts and foundation structures, holding companies and family office companies, which were available in offshore jurisdictions of the UAE (eg, ADGM and DIFC), became appealing to many families in which younger generations are involved in the business and family office. This made the family and op-co governance more complex and required proper structuring and governance plans, to ensure the continuity of the family business and the legal enforcement of other goals such as philanthropic goals, impact investments and venture capital investments by subsequent generations.

In 2020, the UAE adopted the Federal Trust Law (Federal Decree Law No 19 of 2020 Concerning Trust), in a welcome development that added yet another structuring option for local and foreign resident families alike.

With hundreds of different nationalities residing and working in the UAE, the legislator has introduced several crucial amendments to several laws, including inheritance laws.

Background

The United Arab Emirates was formed in 1971 as a federation comprised of seven different emirates: Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Fujairah, Umm Al Quwain and Ajman. The laws of the country are issued on a federal level and at an emirate level. The UAE is a civil law jurisdiction operating in the Arabic language. It also has two English-language common law courts:

• the DIFC Courts, which are in a free zone that has its own civil and commercial laws (including a trust law); and
• the ADGM Courts, which are in a free zone that operates primarily based on English Law.

Trust laws now exist across the country in three jurisdictions:

• the DIFC;
• the ADGM; and
• onshore, through an onshore UAE Federal Trust Law.

Therefore, the UAE offers a variety of options and professional advisers to guide family businesses and investors in their international wealth planning and in their local succession planning, allowing for wealth to pass smoothly from one generation to the next, and to determine how best to do this, in light of the complex and divergent needs of beneficiaries or in light of the complexities of assets.

Law Amendments

The Personal Status Law has recently been revised by way of Federal Decree No 29 of 2020 (the "Amended PSL"), and the Civil Code has been revised by way of Federal Decree No 30 of 2020 (the "Amended Civil Code"). The amendments allow for non-Muslim investors (regardless of residency) as well as UAE residents and expatriates to apply the laws of their home country to the inheritance of their UAE estate, allowing for distribution to take place according to said laws rather than through the application of UAE law, which codifies Islamic Sharia principles on inheritance. However, in order to exercise this succession option, non-Muslims with assets in the UAE are required to make and register a will in the UAE; if the person dies intestate, the UAE succession laws still apply.

Double Taxation Agreements

The UAE has entered into a myriad of DTAs with other countries, enabling UAE residents to avoid double taxation on their UAE income and assets. However, most of these tax jurisdictions do not mention the taxation of trusts very clearly or comprehensively, so further legal and tax advice should be sought by third country nationals with assets and structures (foundations/trusts/holdcos) in the UAE, who may be impacted by the taxation regimes of their country of residence or domicile.

Trusts and Foundations

Trust and foundation structures in the common-law English-language jurisdictions of the DIFC and the ADGM and in the Ras Al Khaimah International Corporate Centre (RAK ICC) free zones are available tools for estate and wealth preservation in the UAE, along with the onshore Arabic-language trusts regime, and work as simple or complex planning mechanisms, providing tax-efficient solutions.

Income/Capital Gain Tax

The UAE does not currently levy any income or capital gain tax on individuals, trusts or foundations. However, if a UAE trust has settlors, trustees and beneficiaries who are residents of a high-tax jurisdiction abroad, the trust could be considered a "deemed tax resident" in that jurisdiction, and could be liable for the payment of tax and the filing of tax returns abroad. The settlors of a UAE trust may also be liable for gift tax abroad, and the beneficiaries may be liable for inheritance taxes abroad, at the time of wealth transfer to that jurisdiction.

As the resident status of a trust is primarily determined by the residence status of the trustees, a UAE trust with trustees who are solely UAE tax residents (who spend at least 183 days per year in the UAE) could enjoy tax-free status on its assets and earnings.

Given that foundations are treated as legal persons, taxation is relatively simple. However, if a non-resident controls the foundation, the country of residence of the controller may be considered the residence of the foundation, and the foundation's assets and earnings may be subject to tax.

There are forced heirship rules based on Sharia, with the applicable inheritance laws being:

• the Federal Personal Status Law No 28/2005 as amended by Federal Decree Laws Nos 8/2019 and 29/2020, which governs personal matters for all UAE nationals and residents, unless the latter request the application of their own home country law instead; and
• the UAE Civil Code (Federal Law No 5 of 1985 on Civil Transactions), as amended by Federal Decree Law No 30/2020.

Federal Law No 11/1992 on the Civil Procedures Law (CPL) as amended by Cabinet Resolution No 33/2020 provides further procedural rules which complement the above-mentioned laws.

Succession planning for non-Muslims with assets in Dubai and Abu Dhabi is guided by the following laws, which shield non-Muslims with assets in these two emirates from the application of the Sharia enforced inheritance regime to their estate upon their demise:

• Dubai Law No 15 of 2017 Concerning Administration of Estates and Implementation of Wills of Non-Muslims in the Emirate of Dubai; and
• Abu Dhabi Law No 14 of 2021 regarding Personal Status for Non-Muslim Foreigners.

Abu Dhabi Cabinet Decision No 8 of 2022 approved further regulations for the implementation Abu Dhabi Law No 14/2021 in the Emirate of Abu Dhabi.

The government of the Emirate of Ras Al Khaimah furthermore opted in to the DIFC Wills and Probate Registry rules and the DIFC Wills Service Center regime in 2018, allowing non-Muslims with assets in Ras Al Khaimah to register their wills in the DIFC and have their own law govern succession matters. All these developments reflect the intent of the country’s leadership to encourage foreign investment into the UAE and maintain respect of foreigners’ own laws, traditions and cultures when it comes to certain personal status matters, whilst also complying with UAE public policy.

The UAE Personal Status Law No 28/2005 law does not have provisions regarding a matrimonial property distribution regime.

Traditionally, the division of assets, wealth and income (sharing) is not recognised in the UAE and is not specifically set out in the UAE legislation, so there are no default principles or provisions for these matters.

Nuptial Agreements

Nuptial settlements are possible under UAE law if they are entered into before the conciliation services of the courts and are issued as judgments by the conciliation judge. Foreign nuptial settlements are not recognised as mirror orders and will only be enforced if both parties agree to them, before the UAE courts. When enforcing any settlement, non-citizens may choose to request the application of the laws of the jurisdiction in which they entered their matrimonial union (the law of the place of marriage).

Articles 12(1) and 13 of Federal Decree law No 30 of 2020, amending some provisions of Federal Law No 5 of 1985, also state that the substantive conditions for the validity of the marriage (for non-Emirati residents) shall be governed by the law of the state where the marriage took place and that this law shall apply to the personal and financial effects resulting from the contract of marriage at the time of divorce.

Prenuptial agreements are not recognised under UAE law but they are used as evidence in some divorce proceedings, if certain conditions are met. Upon the breakdown of a marriage, non-citizen UAE residents have the option to ask for the application of their foreign law during divorce proceedings (the law of the jurisdiction in which they married).

The UAE Personal Status Law does not have any provisions referring to postnuptial agreements, but the UAE federal and emirate level courts will hold any postnuptial agreements and render them as part of judgments. Postnuptial agreements are entered into at the conciliatory part of the court (the mandatory court-led mediation process). They may be enforceable in UAE courts if the parties to a divorce ask for the application of their own matrimonial law instead of the UAE law and this foreign law recognises postnuptial agreements. Given that the UAE civil law system does not operate based on binding precedent, there is no way to ascertain if such cases have been presented to the local UAE courts, or what their outcome was.

Abu Dhabi Law No 1/2021 on Civil Marriage and Its Effects in the Emirate of Abu Dhabi (as amended) and its Regulation No 8 of 2022 is an interesting recent development, as it allows for civil (non-religious) marriages to be entered into by non-Muslims residing in the Emirate of Abu Dhabi; it also regulates divorce, joint child custody and financial rights for non-Muslims.

No taxes are levied on a succession transfer of property, apart from the standard administrative government fee of 4% of the value of the property for any transfer of property in the UAE. A fee equal to 0.125% of the value of the property may apply when the property is to be transferred via succession to family members of 1st and 2nd degree or to the "rightful" Sharia heirs of a Muslim deceased’s immovable property. A transfer fee of 1% of the property value is also applied when an heir transfers the shares of a property to the other heirs in succession cases; this is called Takharuj or an Inheritance on Exit.

There is no tax on the transfer of assets in the UAE.

Activities regarding virtual assets are regulated in the UAE by the Central Bank, in Dubai by the recently established Virtual Assets Regulatory Authority (VARA), and in the DIFC and ADGM by the relevant regulatory authorities of these jurisdictions (ie, the DFSA and FSRA). The UAE has recently positioned itself as one of the most welcoming and advanced jurisdictions enabling crypto-related business, trade and investments to take place, as part of the wider enabling fintech environment.

In terms of succession-related laws, all assets of financial value, including cryptocurrency, will be subject to the existing succession and inheritance laws, and as such digital assets are not taxed at the present time. The transfer of such assets is guided by the relevant succession laws, and by the will’s instructions for non-Muslims with registered wills. Social media accounts will not be subject to said UAE laws, but testators may consult the relevant social media providers for succession planning regarding their online accounts, and designate an executor for these, known as "a legacy contact". Access to email accounts will also be guided by the laws of the jurisdiction of the respective email account providers, in line with their terms and conditions.

Trusts and foundations are popular instruments for wealth management and preservation, family succession planning, tax planning, asset protection and corporation structuring in certain UAE free zones (the DIFC, ADGM and RAK ICC). These vehicles can be used to organise and manage asset holding and distribution for the long term.

DIFC and ADGM trusts can have both charitable and non-charitable purposes, but any trust set up under UAE legislation is only allowed to carry out activities that are lawful and in compliance with the public policy of the UAE.

The DIFC

Foundations in the DIFC are governed by the DIFC Foundations Law No 3 of 2018. A DIFC foundation is normally established by a founder who endows the foundation with certain assets, to be used towards a specified purpose. Although a DIFC foundation has a separate legal personality, unlike a typical corporate vehicle, it does not have partners, shareholders or members, but rather is an orphan structure – ie, "self-owned". The foundation itself may not undertake any commercial activities, except those necessary for, and ancillary or incidental to, its objectives. The place of registration must be the DIFC and a physical presence in the DIFC is a prerequisite, either by the foundation itself renting/owning an office space or through a Registered Agent’s office. The Foundations Law is flexible and allows the founder (along with their legal counsel) to design the structure they desire, to meet the founder’s requirements and objectives. If so desired, the founder can retain a significant degree of control over the foundation, and also has the ability to benefit from the assets during their lifetime.

The ADGM

The ADGM also offers the option of registering foundations under its common law regime, as wealth management and preservation structures, tax planning tools, financial planning mechanisms, estate planning vehicles and Public Interest Purpose Foundations. The ADGM Foundations Regime was introduced in 2017 as an alternative to trusts. ADGM foundations can be used for philanthropic activities if they are structured to allow for such activities; they should also comply with all applicable UAE Laws.

RAK ICC

RAK ICC issued their Foundation Regulations in 2019. Foundations registered with RAK ICC are required to have a registered address anywhere in the UAE for the duration of their lifetime, differing slightly from the DIFC/ADGM Foundation Regulations, which require registered address to be located within the respective free zones. The specialty of RAK ICC foundations is their anonymity, since the Registry does not maintain publicly verifiable registers or records of the foundation.

DIFC, ADGM and RAK ICC foundations can all benefit from the DTAs that the UAE has entered into with 137 countries worldwide, subject to meeting certain criteria in the other respective jurisdictions abroad.

Although two UAE free zones have enabled the establishment of trusts and similar vehicles over the past decade, the UAE civil law system did not recognise trust structures until the UAE onshore trusts Federal Decree Law No 19 of 2020 was enacted, which brought about new opportunities for the management and preservation of wealth as well as asset protection and legacy planning for those with no desire to utilise foreign or free zone trusts. The federal law may apply to all assets held in trust, regardless of location (subject to the in-situ laws of the foreign jurisdiction’s immovable property).

A UAE trust offers many advantages as it allows for the enjoyment of perpetual succession and creates a stable structure for asset holding. It allows for checks to be created on a trustee’s activities and the assets held will not be disrupted if the trustee is discharged or the trusteeship is changed, nor will there be lengthy or expensive transactions incurred to manage such a change. The trustee shall have the same limited liability protection as a commercial business officer, and the trust's formation removes the need for any corporate trustee to be a licensed professional trustee.

Trusts and the underlying assets are not taxable in the UAE (except for corporations held in a trust structure, which may potentially be subject to a corporate tax of 9% from June 2023). A trust could be subject to tax if the settlor, beneficiaries or other contributors reside in a taxable jurisdiction. Similarly, if a trustee resides in a foreign jurisdiction, then the trust will be deemed a resident of a foreign jurisdiction and may be subject to tax. This creates a level of tax protection, allowing the trust to gain income and grow in capital even if the beneficiaries are not UAE residents. Foundations in the UAE have a separate legal persona and are therefore considered resident entities in the UAE and will not be subject to taxes. However, foundations that are founded by non-UAE residents or that have non-residents as beneficiaries may be subject to tax by the jurisdiction of such persons.

There are various tax considerations with regards to the taxation of trust and foundation structures, such as their time of establishment, the level of control exercised by the settlor/founder, whether the settlor/founder is also a beneficiary, etc, all of which impact the decision of the tax authorities abroad as to whether the UAE trust/foundation is considered a sham structure or a proper structure established for the envisaged purposes, and whether it is taxable or not. All these matters need to be addressed by the settlor/founder and beneficiaries with their tax adviser abroad, ideally before the respective structure is set up in the UAE.

The UAE trust laws (mainland, ADGM and DIFC) do not contain any rule against perpetuities and do not require the distribution of assets 21 years before the end of said period, neither do they limit the settlor’s ability to keep trust assets tied up after death, unlike common law jurisdictions. The application of this principle has been excluded from both UAE onshore and free zone trust laws.

The DIFC Trusts law specifies that a trust shall be irrevocable unless its terms expressly provide that the trust is revocable.

ADGM trust regulations provide that “The trust instrument may confer on the settlor or on the protector any power, including without limitation the power to: (a) determine the law of which jurisdiction shall be the governing law of the trust...” Therefore, English law (for example) may govern the ADGM trust, with all applicable provisions regarding revocable and irrevocable trust provisions.

Free zone foundations can have either a definite or an indefinite existence, which means that some foundations will continue to exist until they are dissolved by a council resolution, even long after the founder's death.

For DIFC foundations, a founder may reserve the following powers to themselves:

• the power to amend, revoke or vary the terms of the charter and/or by-laws, in whole or in part;
• subject to certain conditions, the power to amend, revoke or vary the objectives of the foundation, in whole or in part; and
• the power to terminate the foundation.

All such powers are permissible provided that the power to amend, revoke, vary or terminate, as the case may be, is detailed in full in the Charter, and provided that they are only reserved for a period not exceeding the duration of a founder’s life, if they are a natural person or a period not exceeding 50 years from the date of establishment of the foundation, if the founder is a legal person.

The DIFC, ADGM and RAK ICC have all positioned themselves as the region’s hubs for wealth and asset management through statutes for the creation of trusts and foundations. However, these structures have not yet achieved the projected traction, but they are increasingly being used by high net worth individuals, family businesses and other investors.

As a response, the Trust Legislation DIFC Law No 4 of 2018 was introduced, replacing the Trust Law DIFC Law No 11 of 2005. The ADGM's trusts regime is a critical part of the ADGM private client offerings aimed at high net worth individuals and family offices, to better meet their structuring needs.

Foundations are also increasingly used for wealth structuring in the UAE, and can be set up in the DIFC, RAK ICC or ADGM. A founder will endow their assets to a foundation, which will hold them in its name, separate from the founder’s personal wealth. Foundations are managed by a foundation council and may be supervised by a guardian.

The DIFC Courts’ Wills Service Center was established by Resolution No 4 of 2014 and was re-affirmed by Dubai Law No 15 of 2017 regulating inheritance, wills and probate matters for non-Muslims. The Wills Service Center allows non-Muslims to register English language wills in accordance with the law of the testator and to benefit from the speedy and cost-effective DIFC Courts’ probate process (in English). The amended DIFC Wills and Probate Registry Rules enacted in 2019 included important amendments allowing the testator to include worldwide assets in their wills (subject to the in-situ laws for immovables).

The Abu Dhabi Judicial Department (ADJD) introduced the Non-Muslim Wills Registration office in 2018. The service has since evolved under the new Non-Muslims Inheritance Law included in the ADJD Personal Status Law for Expats No 15 of 2022 and associated rules.

In relation to onshore wills, Federal Decree Law No 29 of 2020, amending the Federal Personal Status Law No 28 of 2005, introduced a change to the UAE Inheritance Laws for expats, so that the nationality of the deceased would be the primary deciding criteria regarding a registered will and the underlying assets. It further provided that each emirate may create a specific registry named “Non-UAE National Wills”.

The DIFC was an early proponent of the concept of the Single-Family Office, and the first jurisdiction in the Middle East to define a family office in legal terms.

In addition to the foundation and trust structures available in the various UAE jurisdictions, the Dubai Law No 9 of 2020 Regulating Family Ownership was enacted to create safeguards for family wealth, increasing family businesses' contributions to economic and social development, and promoting family business expansion by establishing a clear legal framework to manage internal operations.

It allows members of a family to enter into a legally binding and notarised contract – ie, the “Family Property Contract” – that allows for the collective ownership and administration of family-owned property for the benefit of the family members and their heirs. This law applies to both new and existing family enterprises, including corporate equity shares and proprietorship. However, it does not apply to family ownership in publicly traded joint stock companies, real estate, or movable and immovable property,

The transfer and registration of property in the UAE require due diligence, a term sheet and a sale contract. Other types of property transfers are via gifts (the concept of heba) or via inheritance.

Developments such as the DIFC and ADGM trust and foundations regimes have been embraced and have become the preferred private client local structuring options to pre-empt disputes from arising.

For example, in 2018 there was some uncertainty on the application of the DIFC’s newly established legislation on trusts and foundations outside of the DIFC. As a result, an advisory ruling issued by the DIFC Court of Appeal (case CA 002/2021) gave conclusive answers to 13 queries raised by the DIFC Authority (and others) on behalf of several private wealth practitioners.

It was also examined how the private wealth management industry would benefit from the DIFC stare decisis principle as a common law system in a wider civil law area. The court was also questioned on whether trust rules applied to property situated in the UAE, where trusts were at that time not yet recognised; the court responded that they did. In the meantime, the UAE issued a federal trust law that provides further options for structuring. In the same vein, it was declared that an entity may hold property in trust under the DIFC Trust Law.

Amongst legal practitioners, the DIFC trust and foundation laws are recognised as leading legislation, containing up-to-date principles from other advanced jurisdictions around the world and leading the way in some areas.

Family Business Disputes

Another example of family business disputes was the recent invocation of an exceptional judicial panel consisting of a judiciary’s powers, to resolve any and all prospective litigation or disputes concerning Majid Al Futtaim’s inheritance and estate matters (Al Futtaim was the founder and owner of the Majid Al Futtaim Group, an Emirati real estate and retail conglomerate spanning various continents). The panel’s responsibility does not extend to supervising the conglomerate or its operations. This is elucidated in the continuation of the operations of Majid Al Futtaim’s empire as usual, whilst the heirs navigate the latest functional modifications and settle the personal inheritance and estate obstacles amongst each other. The Financial Times reported that Dubai's ruler (H.H. Sheikh Mohammed bin Rashid Al Maktoum) had appointed the panel following concerns of conflict amongst Al Futtaim’s ten successors.

This is also reminiscent of a time in the early 2000s when H.H. Sheikh Mohammed bin Rashid Al Maktoum graciously and urgently intervened in another familial conflict to settle a feud between the late Mr Al Futtaim and his cousin Abdullah. Such public disputes always serve as great motivators to families to sort out their succession and wealth planning, as well as their governance structures, on time.

The UAE Trust Federal Law No 19 of 2020, the ADGM Trusts Regulations 2016 (read in conjunction with the Beneficial Ownership and Control Regulations 2018 as amended) and the DIFC Trust Law No 4 of 2018 all contain statutory frameworks for the governance of wealth disputes. The DIFC Courts, the onshore UAE civil courts and the ADGM Courts also each have supervisory authority over disputes held in their respective jurisdictions.

DIFC

Trusts

In the DIFC, the regulating authority for trust disputes is the DIFC Courts. Article 31 of the DIFC Trust Law legislates that a settlor may determine the way in which disputes are resolved and how the trust is to be administered in the trust instrument. However, if no such methods have been specified by the settlor and the parties could not agree in writing on trust arbitration, then the dispute will be submitted to the DIFC Courts.

A trustee is required to take every necessary action to prevent a breach of trust. If a trustee does commit a breach of trust, they will be held liable for that breach by the court, unless the breach was committed by another person prior to the trustee’s appointment. The loss or degradation in value of the trust property brought on by the trustee's breach as well as any foregone profits that would have been realised on the trust property in the absence of the breach are included in the trustee's liability. The beneficiary may, however, release the trustee from their obligation for a breach of trust or hold a trustee indemnified from liability for a breach of trust if the beneficiary has legal capacity and awareness of the relevant facts, and has not been induced by the trustee to relieve them of the breach. Nothing in the terms of a trust would absolve or discharge a trustee from responsibility for a breach of trust brought on by their own fraud, intentional misconduct or gross negligence.

The court may remedy a breach of trust by compelling the trustee either to properly perform the trustee’s duties or to redress a breach by paying money, restoring property or other means. Reduction or denied compensation to the trustee may be decided by the court, which may also suspend or remove the trustee from trust duties, to prevent further breaches. In addition, a special fiduciary may be appointed to take possession of the trust assets and administer the trust. The court may establish a lien or constructive trust on trust property, track trust property that has been improperly disposed of and reclaim the property or its revenues, or order any other appropriate remedy.

For damages, in the absence of a breach, a trustee is not accountable for a loss or a decline in the value of trust property, or for not having produced a profit, unless this is clearly stated in the provisions of the trust.

Foundations

In the DIFC, the DIFC Courts handle foundation disputes. Article 54 of the DIFC Foundations Law No 3 of 2018 stipulates that a foundation’s charter or by-laws may determine the way in which disagreements or administrative questions are to be arbitrated between the contesting parties. However, if no such procedures have been specified in the foundation and the parties could not agree in writing on an arbitration agreement, then the dispute will be subject to the DIFC Courts’ jurisdiction.

If the charter or by-laws of a foundation or the DIFC Foundations Law have been breached by the foundation’s council or any other person involved in the foundation, the DIFC Courts may order those responsible to fulfil the failed obligation. It may also issue a remedial order, which will specify the remedial action on the person or the foundation, depending on the act. The court may also amend the foundation’s charter or by-laws (by application of the foundation or founder) if the adjustment will help the foundation manage its assets or achieve its goals, or if those goals are no longer attainable, to help the foundation achieve its intended goals. The court may also appoint a person to protect the interests of a qualified recipient of the foundation if the recipient is deemed to be unable to act on its own behalf.

Furthermore, the court may declare a foundation’s transfer or other disposition of property voidable if it finds a serious error on the part of a founder or a contributor. The court may also determine whether the transfer may take effect in the future or not at all.

Wills

The DIFC Wills and Probate Rules contain mainly common law principles and processes, slightly adapted to the local context and in compliance with UAE public policy. In line with these Rules, registered wills should ideally comply with the testators’ home country/domicile laws, in order to avoid contentious probate claims arising later. This development was welcomed, as it allowed non-Muslims to obtain certainty regarding succession planning in the UAE and avoid having to go down the Sharia estate disposition route. DIFC wills are also regulated by Dubai Law No 15 of 2017, which re-affirms that wills disputes are resolved exclusively in the DIFC Courts.

Any losses, damages, debts and liabilities incurred prior to the death of a testator would first be asserted against the estate of the deceased.

ADGM

Trusts

Any disputes arising from trusts can be determined by the ADGM Arbitral Tribunal in compliance with the ADGM Arbitration Law of 2015. If arbitration is not specified as a dispute resolution method in the trust deed, then parties need to agree in writing to refer the matter to arbitration, or it will become subject to the ADGM Courts’ jurisdiction.

Foundations

As per the ADGM Foundations Regulations of 2017, disputes shall be referred to the ADGM Courts. No arbitration option is provided for in these regulations.

If a duty is breached by any parties with legal obligation to the foundation, the ADGM Courts will make the breaching party liable for any loss of value in a foundation's assets resulting from the breach, and may issue a remedial order.

Wills

All ADGM registered organisations and their employees have access to a Notary Public and non-Muslim wills service provided by the ADGM Courts in collaboration with the ADJD. The ADJD has licensed and authorised ADGM Courts Notary Publics to perform all duties under Law No 11 of 2017 respecting the Notary Public in the Emirate of Abu Dhabi, including notarising and attesting documents and non-Muslim wills, and other related duties. It is noteworthy that, unlike in the DIFC, the Notary Public and Wills Office of the ADGM Courts does not offer a probate service: applications for probate must be filed with the ADJD's (Abu Dhabi Courts’) Wills and Probate Office, and it is anticipated that this process will be much lengthier than the one in the DIFC.

RAK ICC

The RAK ICC does not have a court to deal with any wealth management disputes. Instead, the contesting parties may refer the dispute to the DIFC Courts or have the local RAK Courts handle it.

Onshore Trust Law

If any party with a trust interest would like to dispute the trustee’s granting of the trust benefits, they must file a request with the competent court, which is determined pursuant to the rules of jurisdiction provided for in the UAE Civil Procedures Law (ie, either the court of first instance in the emirate of domicile or the court of execution). The court has wide authority to determine matters in relation to trust disputes, and in particular has control over trustees who are allegedly acting dishonestly or carelessly. The court is also given the authority to effectively repurpose trusts under certain conditions, such as when a trust with very vague rules is established without being given a clear purpose. The court also has the power to appoint new trustees as necessary and to give protectors and beneficiaries access to trust documents and audits upon application, and as needed.

The court has the authority to invalidate trusts on a variety of grounds, including illegality, conflict with public policy, technical non-compliance, forgery, fraud and error.

In the UAE there is currently no particular law on fiduciary services and nominal owners; therefore, nominee services in terms of the ownership of companies are rarely used. When incorporating offshore and onshore companies in the various free zones of the UAE, and if it was necessary to provide additional privacy, the most common solutions included appointing nominees as directors of the company, who in fact had no rights to manage the company. However, the UAE has now adopted ultimate beneficial ownership (UBO) regulations, which provide a comprehensive framework on reporting and registering beneficial interests (including the identities of UBOs) and nominee directors. The existence of fiduciary duties is contained within Law No 5 of 2005 (DIFC Law of Obligations), the provisions of which potentially apply to employees of companies, including managers.

The law recognises that special obligations apply to an individual who is placed in a position of trust by virtue of the role they undertake. In carrying out their duties or role, an employee, director or manager must exercise a degree of discretion, and will need to apply their own judgment in doing so. This discretion and the decisions they make in performing their respective duties have a direct effect on their employer's interests and that of the business generally. The scope of the duty owed must be assessed in the context of the commercial circumstances and the range of obligations undertaken.

DIFC

The following actions may be taken for a breach of fiduciary duty, under Law No 5 of 2005 (DIFC Law of Obligations).

• Injunction: an injunction may be applied for from the DIFC Court to prevent the disclosure of confidential information or to prevent the fiduciary from taking certain action – eg, working for a competitor or misusing confidential information. If granted, this injunction would need to be registered with the onshore UAE Courts for enforcement onshore, which could be problematic. The DIFC Courts may also make a search order, or require the employee to deliver up, preserve, disclose or destroy the stolen documents or IT equipment containing the confidential information.
• Setting aside: an agreement entered into by the fiduciary in breach of their duties could be set aside by the DIFC Courts.
• Account of benefit or profit: a claim may be brought against the fiduciary to account for any gain made as a result of the breach – eg, diverting a business opportunity to their own business.
• Damages: the person holding a fiduciary function could be sued for the loss suffered as a result of their breach.
• Regulatory sanction: depending on the sector in which the fiduciary role is undertaken, the fiduciary may face sanctions by a regulator such as the Dubai Financial Services Authority. Depending on the seriousness of the breach, criminal action may also be taken (the UAE Penal Code is applicable within the DIFC).
• Dismissal or removal from office: depending on the level of breach, a director may be removed from office without compensation. A manager, employee or director may be summarily dismissed without notice or end of service gratuity.

In the UAE, it is indeed possible to pierce the veil of a trust, foundation or similar entity and hold the fiduciaries liable for the liabilities of such entity, but only if the liabilities were caused by a proven breach of trust of the trustee or by fraud, wilful misconduct or gross negligence on the part of the trustee.

ADGM Trust Regulations provide that "a trustee shall not be liable for any loss caused by his actions if the aforementioned consent was given and the trustee acted in good faith." All other liabilities are in accordance with English law, which applies in the ADGM, or in compliance with the law of the trust, if the trust deed opted for another governing law.

The Mainland UAE Federal Trust Law states that “The Trustee shall be liable for any loss or damage to the value of the Trust Property which arises from his breach of the conditions of the Trust Deed or from his wilful default or gross negligence in management of the Trust ... The Trustee shall be liable for any act caused by deceit, wilful error or gross negligence ... In the case of damage to the Trust Property caused by any of the reasons provided for in (1) of this Article, the Trustee shall be liable for indemnity.”

Article 15(4) states that “A Professional Corporate Person shall have the power to nominate a natural Person Professional Trustee and shall assume the full liability imposed by this Decree Law and the other relevant Laws relating to the appointment of Professional Trustees.”

According to the Federal UAE Trust law, a trustee is to undertake all the procedures and take all the reasonable legal and material actions to control investment transactions and to maintain and protect Trust Property and protect any rights relating thereto.

This law also allows for the creation of a "Special Purpose Trust", the definition of which includes “A Trust created for purposes of dealing in securities in all forms of dealing recognized in capital markets including owning securities, trading in securities and investment in securities."

There are no further guidelines or rules regarding the investment of assets.

In the DIFC, Article 67(2) states that “A trustee shall exercise his powers ... in accordance with the terms of the trust.

• (1) Upon acceptance of a trusteeship, the trustee shall in the execution of his duties and in the exercise of his powers and discretions:
1. act with due diligence as would a prudent person to the best of his ability and skill; and
2. observe the utmost good faith; in accordance with the terms and purposes of the trust and this Law.”

Furthermore, when investing in securities, a trustee is allowed to exercise the rights of an absolute owner with respect to investments relating to stocks or other securities, but is only allowed to “deposit trust money in an account in a regulated financial services institution; and ... deposit the securities with a depositary or other regulated financial services institution.”

The ADGM jurisdiction applies English law or will request trustees to invest in compliance with the law of the trust if the trust deed opted for another governing law.

There is no specific investment theory or standard applicable to the fiduciary investment of assets in the UAE.

Trusts, foundations or similar entities are all authorised to hold active businesses (if they are set up as non-charitable entities) and, by virtue of the entity owning that asset, the fiduciary is effectively allowed to run the business, unless a degree of separation has been provided for in the foundational documents of that structure, or if other persons have been appointed to run these businesses. The habitual rules of prudent management in compliance with the law and with the trust deed/foundation charter and by-laws apply.

Domicile as a concept is not prevalent in UAE legislation, and may be feasible only by the acquisition of a residency visa for foreigners or acquiring the UAE nationality. A residency visa allows its holder a temporary stay of a number of years in the UAE for a particular purpose (work, education, retirement, investment, family reunion, etc) and usually requires a "sponsor", whereas a UAE nationality holder is granted a permanent residency. Where family visas are involved, a UAE resident may obtain a residency visa as a sponsor for a son until the son reaches the age of 25, and for a daughter until her marriage. There are also long-term residency visa options. The Green Visa is a new long-term (five years) residence category, and will be introduced in September 2022. Holders will be able to remain in the UAE without the requirement for a sponsor, and will be able to sponsor first-degree family members.

The Golden visa was introduced in 2019 and offers its holder a ten-year residence with no sponsor requirement, and automatic renewability. Investors can obtain a Golden visa through an investment of at least AED10 million in public sector projects or by establishing an entity or company for the same amount within the UAE. Individuals in certain professions may also obtain a Golden visa if they have specialised skills, such as doctors, lawyers, scientists, inventors or creative persons active in art and culture, with accreditation from the relevant UAE legislative body for the field of work.

When applying for the UAE nationality, a foreign applicant must:

• have lawful and continuous residency in the UAE;
• be proficient in Arabic;
• have a lawful source of income;
• hold an educational qualification (unless the applicant is a foreign woman married to an Emirati national, which could exempt them from this requirement);
• be of good reputation and conduct;
• not have been convicted of a crime or misdemeanour regarding moral depravity or dishonesty, unless rehabilitated;
• acquire security approval; and
• swear allegiance to the UAE.

The length of a lawful and continuous residency differs depending on the candidate’s circumstances.

UAE nationality is automatically granted to anyone born in the UAE or abroad if the father is a UAE national. Acquisition of UAE nationality via the mother’s nationality is only allowed in cases where the filiation to the applicant’s father is unknown or where the father is without citizenship. A child may also be given nationality if they are born to unknown parents; if found without parents, a child will automatically be assumed to have been born in the UAE and will be granted UAE nationality, unless proven otherwise.

The President of the UAE may issue a decree to grant nationality to any person without regard to residence periods or other nationality criteria (ie, making exceptions to the rules). Nationality may also be granted disregarding residence periods to any person that has provided outstanding services to the UAE – eg, heroic behaviour or extraordinary contributions to the country. Nationality is also granted by a decree to children of UAE mothers and non-UAE fathers.

There are no special planning or structuring mechanisms for minors or adults with special needs – ie, persons of determination. However, Personal Status Law No 28 of 2005 regulates all matters relating to the management of minors’ funds through inheritance.

A child under the age of 21 is considered a minor in the UAE for the purpose of inheritance. Default local inheritance laws shall apply to the guardianship of minor children in the event of the death of either parent. Guardianship of Muslim children who are habitually resident in the UAE shall be determined in accordance with Sharia law, regardless of nationality. Guardianship of non-Muslim children can be determined by appointing guardians in a valid registered will. In the absence of a valid registered will, guardianship is determined by Sharia law, which generally means that, in the event of a father’s death, his next male relative shall be the default guardian, or the mother if the default guardian waives his right to the minor’s guardianship. For example, if the paternal grandfather of the children is alive, then he shall be the legal guardian.

UAE courts may also appoint themselves as guardians of minors and of people with special needs, if so required.

Article 1 of Dubai Law No 15 of 2020 transfers certain functions of the Awqaf and Minors Affairs Foundation (AMAF)related to guardianship over persons to the Community Development Authority (CDA), which is in charge of various social services, including assisting people of determination, senior citizens and vulnerable citizens.

UAE Federal Law No 29 of 2006 concerning the rights of people of determination guarantees equal care, rights and opportunities for people of determination in education, healthcare, training, work, public life, rehabilitation, etc. It also aims to integrate people of determination into society, accommodate their needs, provide required facilities and grant them access to schools, workplaces, cultural and social activities, etc. However, certain governmental services in this regard are solely providing services to UAE nationals.

Upon the death of the father of a minor, the court will assign a person to be responsible for overseeing the guardianship of said child, in compliance with UAE law. In the UAE, guardianship will usually be passed to patrilineal kin with proven capacity. Judges will often select agnates of the father with the closest lineage for the guardianship role. However, for non-Muslims, the judge in a probate case of a DIFC registered will, an ADJD will or a foreign will shall order the guardianship to be granted to the designated guardian as written in the will, and is bound to respect the testator’s wishes, subject to UAE public policy.

In the appointment of a guardian for a person of determination, the closest family member will be selected primarily. The CDA in Dubai specialises in carrying out the work of a legal guardian in terms of endowments, care and investments, managing funds and disbursing proceeds within the limits of the endowment’s conditions in a manner that achieves its legitimate purposes.

The UAE’s National Policy for Senior Emiratis defines elderly citizens as individuals aged 60 years or older and refers to them as "Senior Emiratis" in appreciation of their service to the UAE. The Ministry of Community Development is responsible for ensuring that retirement homes provide senior UAE citizens with primary healthcare, social, psychological and physical therapy. These services may be provided at home for a senior citizen, also overseen by the Ministry.

There are various financial planning options for retired expats, ranging from professional investment firms and advisers to structuring options. The UAE wealth management infrastructure is considered a mature one nowadays and includes a myriad of options for all age levels.

Prior to recent amendments to the law, parents of children born out of wedlock would have been imprisoned. The child would not have been legally recognised but would have been able to be registered and obtain a birth certificate, at the discretion of a UAE court. However, recent amendments have decriminalised consensual non-marital relationships and allowed for an out-of-wedlock child to be legally recognised, provided that the parents get married or legally acknowledge the child jointly or singly. Failure to recognise a child leads to a two-year imprisonment.

Adoption

Adoption as such is prohibited in the UAE. However, if adoptive parents do not give the child their family name, UAE citizens and Muslim UAE residents can care for an orphan or abandoned child. An orphan or an abandoned child will be regarded to have been born in the UAE and shall automatically be granted UAE nationality. Adoption may not be prohibited for expatriate resident couples if the adoption procedure and paperwork is done outside the UAE, in compliance with the laws of another jurisdiction. Adoption orders from other countries may be accepted in the UAE if the child shares the adoptive parents' surname. For example, if an adoption takes place in the United Kingdom and the child's surname is changed to that of the adoptive parents, the adopted child can then be brought to the UAE, be sponsored for residence as their legal progeny, and be protected under the law as their child. In this instance, UAE law will not distinguish between biological and adoptive children.

Surrogacy

Surrogacy agreements do not exist in the UAE, and were criminalised prior to Article 356 of Federal Decree Law No 15/2020. However, reforms have removed criminal penalties for surrogacy agreements.

Posthumous Conception

Posthumously conceived children are legally recognised. If the posthumous child is born out of wedlock, then the living parent must legally acknowledge the child as their own and provide the necessary documents. If both parents have died, the child will be granted UAE citizenship and be appointed a guardian by the government, usually another family member.

All children have rights to inherit or become beneficiaries of their parents’ estate, unless they were born out of wedlock (however, under DIFC Rules, even illegitimate children of non-Muslims can inherit from their father).

Same-sex marriages are neither legally permissible nor recognised in the UAE, even if the marriage took place in a country where a marriage certificate was issued. The UAE also does not recognise domestic partnerships. However, civil marriages of non-Muslims of the opposite sex conducted overseas or in Abu Dhabi are acknowledged on the condition that a marriage certificate has been attested by the relevant authorities.

According to existing regulations, anyone can legally contribute funds to registered charitable organisations for humanitarian purposes, while those who want to raise funds must first obtain approval from the General Authority of Islamic Affairs and Endowments at the national level or from the Islamic Affairs and Charitable Activities Department in Dubai. However, in order to combat money laundering and terrorism financing, the government recently approved Federal Law No 3 of 2021, which significantly restricts and regulates such charity donations.

The legislation allows only registered charity organisations and federal, local and private organisations to collect, receive and give donations if they are fully legally authorised to collect and distribute funds.

Private individuals, businesses and organisations can now create their own endowments under the new endowment law. Individuals and corporations can establish endowments in a variety of other fields that assist people in need or the community.

The AMAF will continue to register endowment entities or donors, provided they acquire the appropriate papers; following evaluation, the AMAF will award Waqf licences to applicants. The endowment body will be issued a Dubai Endowment Sign when the Waqf licences are submitted to the Mohammad Bin Rashid Global Centre for Endowment Consultancy. The Dubai Endowment Sign will allow the benefactor to function as an endowment institution and work autonomously toward any charity objectives they may have. As the endowment regulator, the AMAF will continue to oversee endowment earnings and spending to ensure that funds are utilised according to the endowment's declared purpose.

In addition to allowing donors to choose the objective or recipients of their endowments, the endowment law's provision for the acquisition of the Dubai Endowment Sign is a significant incentive for public or private sector benefactors to donate to Arab communities through endowments.

Federal Law No 3 of 2021 directly states and lists the authorised charitable organisations and government entities responsible for social, charitable and humanitarian work inside and outside of the UAE.

There are currently no tax benefits that may be obtained by individuals or entities when setting up a charitable foundation. Setting up a charity has the disadvantage of a difficult, strict, rigorous and heavily regulated process under the new legislation. On the other hand, this process helps to ensure that donations reach the right beneficiaries and are not used for unlawful purposes.