Published December 2017
This country-specific Q&A provides an overview to private client law in UAE.
It will cover taxes, succession laws, wills, trusts and their structures.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/private-client/
Which factors bring an individual within the scope of tax on income and capital gains?
There is currently no income tax, capital gains tax, or any other personal taxes payable within Dubai. That being said, expat residents may still have an ongoing tax liability in their home country and should ensure that they keep themselves up to date with the relevant regulations and reporting standards.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
There is no Inheritance Tax due on death in Dubai however, Dubai citizens and expatriate residents could still be subject to Inheritance Tax or Death Tax in other jurisdictions where they hold assets.
Where real estate property passes on death in Dubai, whether under Shari’a Law or in implementation of a Will, there are transfer fees for the re-registration of the property to the heirs/beneficiaries.
There is no tax payable on gifts by individuals.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (eg business or agricultural assets), and how do any such reliefs apply?
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
As of 1st January 2018, Value Added Tax (VAT) will be introduced to Dubai (and the whole of the UAE) at a rate of 5%. VAT will be payable by any individual who purchases any produce or service. At the time of writing the regulations had not yet been published, however it is expected that the majority of food items, school fees and healthcare costs will be exempt from VAT.
Individuals who own companies within the UAE must register for VAT if their annual VAT taxable turnover is in excess of AED 375,000. Voluntary registration will also be available if a company’s taxable turnover exceeds AED 187,500.
While Dubai is thought to be largely a tax free jurisdiction, there are a number of indirect taxes including; road usage tax (Salik), soft drink and cigarette taxes, property municipality tax, and municipality tax on water and electricity.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
Residence in Dubai is based on obtaining a UAE visa. For most expatriate residents, this will be a work visa obtained for them by their UAE employer, although other types of visas, such as investor visas, can also be obtained. Visa rules and regulations do change from time to time, and advice should be sought prior to moving to Dubai if not going down the traditional work visa route.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
In Dubai Shari’a law governs succession principles for Muslims. Shari’a law will also, in the absence of a Will, be applied to an expatriate’s assets on death. Under the Shari’a law principles forced heirship provisions apply, distributing assets by way of fixed shares between the deceased’s family.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
What factors cause succession laws to apply on the death of an individual?
Shari’a law will apply to all Muslims. Non-Muslim expatriates, or other foreign owners of assets in Dubai, may make a Will to ensure that their assets pass other than in accordance with Shari’a law. The local courts in theory will accept the validity of a foreign Will following the implementation of the new Law No. 15 of 2017, however to ensure that a Will will be recognised in Dubai, it is thought to be better practice to register a Will with the Dubai International Financial Centre Wills and Probate Registry (DIFC WPR).
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
Shari’a law will always prevail unless a valid Will (implemented by a non-Muslim) is recognised.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
A non-Muslim with substantial assets in Dubai should always register a Will with the DIFC WPR, which was established in 2015 as a mechanism for non-Muslims, over the age of 21, to register a Will to determine how their assets held in the Emirate of Dubai and/or Ras Al Khaimah are to be distributed on death. The DIFC WPR is modelled on Anglo-Saxon common law principles, and there are 5 different Will styles available; Full Will, Guardianship Will, Property Will, Free Zone Company Will and Financial Assets Will. An individual does not need to be resident in Dubai to register a Will with the DIFC WPR.
Law No.15 of 2017 was recently announced providing for the registration and enforcement of foreign Wills in the Dubai local courts, and the implementation of this law has now begun.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
Where an individual passes away in Dubai having implemented a valid DIFC Will, or local Will under the new law, a Grant of Probate will be issued by the DIFC Courts in accordance with the requirements under the DIFC WPR rules.
Where an individual passes away in Dubai, without a Will, the estate will be administered by the local courts, in accordance with Shari’a law principles.
Do the laws allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
The laws of the DIFC allow for the creation of trusts and shortly foundations (the DIFC equivalent in the Emirate of Abu Dhabi is the Abu Dhabi Global Market Freezone which has recently introduced similar trust and foundation laws). The DIFC Trust Law expressly provides that the common law of trusts, and principles of equity apply.
How is any such structure constituted, what are the main rules that govern it, is there any requirement for registration with or disclosure to any authority or regulator, and what information about the structure is available to the public?
A DIFC trust (whether express, charitable or non charitable) can be constituted by one of 4 methods; 1) transfer of property by the settlor during their lifetime or by Will, 2) a transfer of property between trusts, 3) a declaration by the beneficial owner of property that the property is held on trust by the legal owner and, 4) power of appointment in favour of a trustee. The Dubai Financial Services Authority regulates DIFC trusts, and there is no public register.
Under the proposed DIFC Foundations Law due to be implemented in early 2018, an individual looking to establish a foundation, is required to apply to the DIFC Registrar in accordance with the prescribed application rules. There are four categories of foundations based upon their objects; 1) objects which are exclusively charitable, 2) objects which are not charitable, 3) in order to provide benefits to persons identified in its Charter or By-laws, and 4) a combination of the above. Different governance requirements will apply depending on which foundation is created. All foundations are administered in accordance with their Constitution, and the foundation’s Council is the sole governing body. A foundation must have a physical presence in the DIFC, whether that be through a registered DIFC office or Registered Agent, and all foundations are subject to audit and accounting regulations. While there is no public register proposed for DIFC foundations, the Registrar or Registered Agent may be required to release information as to the Ultimate Beneficial Owner, if ordered to do so for legitimate purposes.
Both DIFC trusts and the proposed foundations are exclusive to the jurisdiction of the DIFC, and are governed by the DIFC Courts in accordance with DIFC law.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
All structures within Dubai are tax neutral.
Are foreign trusts, private foundations, etc recognised?
Whilst there is no concept of trusts and foundations under local law, in practice, many local assets are capable of being held by offshore holding companies and in turn, are owned by offshore trusts and foundations.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
All foreign structures are deemed tax neutral.
To what extent can trusts, private foundations, etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
At present, there are no specific asset protection laws applicable to trusts or the proposed foundations within the DIFC.
What provision can be made to hold and manage assets for minor children and grandchildren?
Parents in UAE are advised to assign legal guardians for minor children, to hold and manage assets on behalf of a child until they reach the age of majority (21), or earlier if deemed appropriate. Guardians may be either interim and/or permanent, and the most appropriate mechanism in which to assign guardians is through provisions in a Will.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
UAE law allows for specific legal documentation to be implemented in relation to mental incapacity, however its implementation has been practically limited to local Emirates, and the position with regards to expatriate residents is uncertain.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
The DIFC Trust Law provides for the creation of a charitable trust if it is created for the relief of poverty, the advancement of education or religion, the promotion of health or art, the protection of the environment, or any other purposes which are beneficial to the general public.
The proposed DIFC Foundations Law also provides for the creation of a foundation to hold property for charitable objects. For a charitable foundation to be valid, a Guardian must be appointed to oversee the charitable objects.
The manner in which to create charitable trusts and foundations is as detailed above.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
Legislative changes can and often do happen very rapidly in Dubai. The proposed new Foundations Law and extension of the Trust Law in the DIFC, and the introduction of VAT, should be noted (as well as the forthcoming probate court for non-Muslims in Abu Dhabi), but anyone wishing to become resident in, or invest in Dubai, is always best advised to seek prior advice before doing so in order that the current position can be ratified in advance.