Family businesses significantly contribute to the UAE economic growth; and the Dubai International Financial Centre (“DIFC”) provides unique and tailored services for family businesses and ultra-high-net-worth individuals, allowing them to take advantage of setting up in a Tier 1 financial freezone and achieve multi-generational wealth planning and success in the region.
The DIFC menu of tailored options available to families now consists of:
- Foundations
- Holding Companies
- Prescribed Companies
- Family Offices
With respect to Family Offices, the DIFCA has enacted the Family Arrangements Regulations 2023 (“New Regulations”) – repealing the existing Single Family Office Regulations (SFO Regulations) issued in 2011– to take into account the recent enactment of the UAE Federal Law No. 37 of 2022 relating to the UAE Family Business Law (“UAE Family Business Law”).
The New Regulations aim to (i) support the objectives of the UAE Family Business Law in the DIFC; (ii) prescribe the arrangements which families can make within the DIFC for the better operation of their businesses, the preservation of their wealth and the succession and legacy planning in respect thereof; and (iii) prescribe the manner in which accredited advisers, corporate services providers and registered persons in the DIFC can provide services to families in or from the DIFC.
Below are the main changes introduced by the New Regulations, in line with the UAE Family Business Law:
1. Key Definitions – Family/ Family Member/ Family Entity/ Family Structure/ Family Office
As per the New Regulations, a Family consists of one or more Family Members.
The definition of Family Member, in turn, has been expanded by the New Regulations which facilitates the identification of who will be classified as such, as follows:
a) a common living ancestor and the descendants of that common ancestor, including male and female descendants and their spouses (including widows and widowers, whether or not remarried), their stepchildren, adopted children and ex-nuptial children and their descendants and spouses determined in a similar manner; or
b) related as a descendant to a common ancestor, including male and female descendants and their spouses (including widows and widowers, whether or not remarried), their stepchildren, adopted children and ex-nuptial children and their descendants and spouses determined in a similar manner, provided that such common ancestor does not exceed three preceding generations.
The Family Entity and Family Structure definitions have also been expanded by the New Regulations.
A Family Entity is any entity including a body corporate, a partnership, a foundation or any other entity or body which has a legal existence separate and distinct from the persons (legal or natural) comprising that entity or body, but excluding NPIOs (or similar not for profit organisations), and that is established for the sole purpose of:
a) holding, investing, operating or utilising assets of a Family, a Family Structure or the proceeds thereof; or
b) the succession/legacy planning of Family assets or the benefits/proceeds derived therefrom,
which entity, whether in its own right or in the capacity of trustee, is controlled by a Family.
Family Structures can be any number or combination of one (1) or more Family Entities or trusts, provided that for any trust or foundation, the trustee, council or governing body must be appointed by one (1) or more Family Members or one (1) or more Family Entities, or in accordance with requirements provided by them. In addition, subject to Regulation 2.2.3, the beneficiaries, qualified recipients or persons otherwise capable of benefiting from a Family Structure component that is a trust or a foundation must be:
a) one (1) or more Family Members of that Family;
b) one (1) or more Family Entities of that Family;
c) one (1) or more charities or recipients identified in line with the charitable requirements of:
(i) a Family Member or Family Entity of that Family; or
(ii) a trustee, council or governing body appointed by a Family Member or a Family Entity, or in accordance with requirements provided by them; or
d) other Family Structure(s) whose shareholders, partners, beneficiaries or qualified recipients are similarly restricted.
Family Offices are registered persons that are licensed as such by the DIFC Registrar, following the registration requirements set forth in the New Regulations and provided that the Family concerned has in aggregate net assets of at least USD50,000,000.
Although the New Regulations increased the minimum net asset requirement for Family offices from USD 10,000,000 to USD50,000,000, the latter is now based on aggregate net assets and not only investable/liquid assets, which was required by the previous SFO Regulations.
2. Introduction of a Private Register
The UAE Family Business Law has introduced the concept of a private register for family businesses, with the purpose of incentivising family-owned businesses in the UAE to put in place proper succession and legacy planning and implement, inter alia, good governance measures. In return, the family business that qualifies to be on such register may be eligible for certain benefits and concessions if it indeed meets the requirements or adheres to the standards required to qualify for such benefits or concessions.
Insofar as the UAE Family Business Law allows for a local authority to be responsible to keep a special register in a free zone, the DIFC Registrar of Companies (“RoC”) was appointed as the competent authority to deal with the administration of the UAE Family Business Law in the DIFC, and to register a Family Business in the so-called “Family Business Register”, which shall not be disclosed on the public register.
Per the New Regulations, the RoC has the authority to publish any additional requirements for a Family Business to be entered in the Family Business Register, and the rights, obligations, benefits, concessions or incentives applicable or available to any of them. Also, the RoC may remove or suspend a Family Business from the Family Business Register if it fails to meet the requirements for such registration.
3. Introduction of new Certification and Accreditation regimes
The New Regulations empower the RoC to issue, revoke and suspend certifications or ratings of Family Businesses, Family Entities or Family Structures, based on the requirements and procedures to be set by the RoC from time to time.
Specialist and professional advisers, natural or legal persons, may also be registered as Accredited Advisers with the RoC to represent and liaise directly with the RoC on behalf of Family Businesses for any application under the New Regulations. The RoC shall set different categories of accreditation and the requirements that must be met by professional advisors in order to achieve the Accredited Advisor status.
4. Flexible Arrangement regarding Permanent Presence in the Centre
The New Regulations lift the requirement under Article 13(3) of the DIFC Operating Law No. 7 of 2018 in respect to DIFC-registered Family Entity or Family Office, which will not be required to operate from premises in the DIFC, provided that they satisfy the RoC that each Family which owns the Family Entity or Family Office has a substantial presence in the United Arab Emirates; and it has appointed a Corporate Services Provider in the DIFC.
5. Appointment of Corporate Services Providers
The RoC may enter into agreement with Corporate Services Providers to provide administrative access to the DIFC registry services portal in respect of a Family Business, a Family Entity, a Family Office, or a Family Structure.
The Corporate Services Provider will be required to perform some or all assessments, checks and verifications under the New Regulations to ascertain and confirm whether an applicant/ registrant adheres to AML requirements, UBO Regulations, maintains accounting records and where applicable, continues to maintain the relevant licence, qualification or certification requirements.
6. Why are the New Regulations relevant?
The enactment of the New Regulations represents a game changer for founders of Family Businesses in the DIFC. It repeals the DIFC Single Family Office Regulations, which had certain limitations for family businesses willing to operate in the DIFC, and aligns with the UAE Family Business Law, recently published. It also reviewed the definitions of Family, Family Member, Family Entity, Family Structure and Family Office, broadening the scope of each classification.
The New Regulations form part of the DIFC’s comprehensive efforts to outline a roadmap for the growth and prosperity of Family Businesses in the jurisdiction, and complements previously introduced tools, chief among which are the foundations.
Available domestically since 2017, foundations have become the most popular structure to hold private assets with the aim at protecting the family’s assets and ensuring smooth inter-generational transition. Foundations and underlying holding companies are commonly used as Single Family Offices, benefiting from a light and cost-effective corporate structure in one of the UAE Financial Centres (DIFC and ADGM). Such structures shall also be positively impacted by the enforcement of the New Regulations.
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