United Arab Emirates: Private Client

The UAE does not currently tax individuals on personal income or capital gains derived from holding personal assets.

Under Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“UAE Corporate Tax (CT) regime”), which will have effect in relation to Tax Periods beginning on or after 1 June 2023, corporate tax will only be levied on Taxable Income and capital gains generated by a Taxable Person.  Taxable Person essentially refers to entities or individuals carrying on a business in the UAE.  This will have the effect that individuals will be subject to income tax and capital gains only to the extent that the income and capital gain is derived from business activities carried on in the UAE (Taxable Income), subject to certain criteria.

The UAE has announced that no personal tax regime is planned for the near future. Therefore, income derived from employment and personal investments will remain outside of the scope of the UAE’s CT regime.  To this end, the remainder of the responses refer to individuals that do not fall within the scope of the UAE CT regime, unless specifically stated.

Currently a natural person is considered to be a tax resident (and is able to apply for a tax residency certificate) only once they have been residing in the UAE for at least 180 days.  New tax residency rules, under Decision No. 85 of 2022, come into effect on 1 March 2023 whereby determining UAE tax residency or otherwise will be subject to specific criteria and legislation.  Under the new law, a natural person will be considered to be a tax resident of the UAE if they:

• have their usual or primary place of residence and their centre of financial and personal interests in the UAE;
• were physically present in the UAE for a period of 183 days or more during a consecutive 12 month period;
• were physically present in the UAE for a period of 90 days or more in a consecutive 12 month period and the individual is a UAE national, hold a valid residence permit in the UAE or hold the nationality of any GCC Member State where:
  • he or she has a permanent place of residence in the UAE; or
  • he or she carries on employment or a business in the UAE.

This means that individuals that hold a valid UAE residence visa will only be required to spend 90 days per calendar year in the UAE in order to be considered a resident for tax purposes.

While being considered a resident for tax in the UAE will not necessarily give rise to a UAE based personal tax liability (as a result of personal income which is not derived from a business or business activity not qualifying as Taxable Income), it may help individuals to prove UAE tax residency, potentially removing them from the tax net of another country.

Muslims are subject to zakat under Sharia’a law, however, this is not codified in the UAE.  As such, the remaining responses in respect of tax do not consider the Sharia’a rules.

Not applicable.

Not applicable. There are no withholding taxes relevant to individuals outside of the UAE CT regime.

Not applicable. As the UAE does not tax individuals there is no instance where double taxation arises. Therefore, there are no circumstances where relief from double taxation would be applicable as any individuals taxed in another jurisdiction would only be subject to tax in that other jurisdiction.

Not applicable. There is no wealth tax or equivalent in the UAE.

Not applicable. There is no tax charged upon death or on gifts made by an individual in the UAE.

Not applicable.

Not applicable.

There are no taxes applicable to real property in the UAE.

The UAE may charge transfer fees in respect of real property, depending on where the property is situated and under which authority it is regulated.  For example, transfers of Dubai land are regulated by the Dubai Land Department (“DLD”) which generally charges a fee equal to 4% of the value of the property.  This is payable only in order to register a transfer of title and is not considered a tax per se.

Not applicable.

Not applicable.

An individual should be aware of the impact of the new tax residency rules for the UAE (applicable from 1 March 2023), in conjunction with the rules of the jurisdiction they are moving from in order to optimise the transition.

In addition, individuals that are involved in a business (other than as employees) should be aware of the operation of the UAE CT regime (from Taxable Periods beginning on or after 1 June 2023) and the Economic Substance Regulations (“ESR”).  These rules may extend to individuals who are ultimate beneficial owners or otherwise manage and control a Taxable Person (including an entity or entities) in the UAE or another jurisdiction.  An awareness of these rules may help the individual optimise their position for tax purposes on establishing a residence in the UAE.

The main rules of succession are covered under Federal Law No. 5 of 1985 (as amended) (“UAE Civil Code”) and Federal Law No. 28 of 2005 (as amended) (“UAE Personal Status Law”).

The rules of succession will apply differently depending on whether the deceased is a Muslim or a non-Muslim.

For Muslims, irrespective of their nationality, the inheritance rules under Sharia’a will govern the succession of their estate, whether it comprises movable or immovable assets and rights.

For non-Muslims, the UAE Personal Status Law and the recent amendments to the UAE Civil Code confirms that the laws of their home country may apply to their estate.

Muslims

As noted above, the estate of Muslims will be subject to the inheritance rules under Sharia’a and governed by the provisions of the UAE Personal Status Law which are derived from the Holy Quran and the sayings of the Prophet (Hadith).

After discharging the expenses related to the burial and any relevant debts of the deceased, a maximum of one third (1/3) of the remaining estate may be allocated to certain heirs specified in the Will (if any) such as charitable foundations or any other heirs other than those who are eligible to benefit from the remainder of the estate in accordance with the forced heirship rules.

The remainder of the estate (after distribution of the discretionary 1/3 described above) must be allocated to the relevant heirs in accordance with the forced heirship inheritance rules as set out under Sharia’a and the UAE Personal Status Law. Under the inheritance rules of Sharia’a and the UAE Personal Status Law, such remainder of the estate is allocated based on fixed shares and distributed in priority to primary heirs (who must be Muslims such as the spouse, children, parents). Residual beneficiaries (such as siblings, grandchildren, uncles) may also inherit depending on the existence or not of primary heirs.

In practice, the Personal Status Court will issue a probate document confirming the fixed share to be allocated to each eligible heir which will be determined based on the relationship the relevant heir has to the deceased and the existence of other heirs.

Generally, (i) a male will be allocated double the share of a female; and (ii) non-Muslims or adopted children will not be entitled to a share of the estate unless a bequest is made in the Will of the deceased as part of the 1/3 discretionary distribution described above.

Non-Muslims

New legislation has been introduced and existing laws have been amended to avoid non-Muslims being subject to the application of the inheritance rules under Sharia’a.

Accordingly, and for the purpose of avoiding the potential application of the forced heirship rules under Sharia’a, the recent amendments to the UAE Civil Code clarify and reaffirm the right for non-Muslims to elect for the provisions of their home country to apply to their will and testamentary dispositions in respect of their movable assets. With respect to UAE real estate, the UAE Civil Code provides specifically that UAE law must apply to such real estate which can be dealt with by way of a Will registered in the DIFC or the ADGM (as explained below).

A Will under a foreign law still has to comply in substance with the procedural requirements of the UAE.

The Emirate of Abu Dhabi recently introduced the concept of a civil marriage for non-Muslims pursuant to Abu Dhabi Law No. 14 of 2021. Furthermore, Federal Decree Law no. 14 of 2022 on Civil Personal Status was issued on 3 October 2022 (but will come into force on 1 February 2023) mirrors the provisions relating to wills and inheritance as originally set out under the Abu Dhabi Law. This Federal Decree Law also only applies to Non-Muslims (but on a federal level) unless there is a duly registered Will in place or a request is made for the application of the law of the testator home country in respect of matters relating to inheritance and wills. Under such federal law:

(i)         the testator shall have the right to leave a Will in respect of his property located in the UAE in favour of any beneficiary at his sole discretion in accordance with certain executive regulations to be issued in due course;

(ii)        in the absence of a Will, half of the estate shall be distributed to the husband or wife (as the case may be) whilst the remaining half shall be equally distributed between the children irrespective as to whether such children are male or female;

(iii)       if the deceased has no children, the estate shall be equally distributed to the parents if they are alive; and

(iv)       if the parents of the deceased are not alive then a distribution mechanism is further set out in the law.

For the purpose of mitigating potential risks and issues with respect to immovable assets and certain other practical and procedural considerations, it is recommended that non-Muslims register a Will with the Dubai international Financial Centre Wills Registry (“DWR”).

The DIFC Courts Wills Service is a joint initiative of the Government of Dubai and the DIFC Courts that entitles only non-Muslims in the UAE the option to pass on their assets and appoint guardians for their children in accordance with the instructions in their Will (without being subject to the inheritance rules under Sharia’a). It remains to be seen the manner by which the DIFC and foreign courts will address the issue of distributing assets located outside the UAE.

A DIFC Will is governed by DIFC Laws and therefore, it technically falls outside the ambit of Sharia’a inheritance rules. However, it must be noted that grants of probate and orders for the distribution of assets under a DIFC Will still need to be presented to the Dubai Courts in order to be validated. This is because the relevant governmental authorities (e.g. DLD) will not action orders of the DIFC Court unless they are validated by the Dubai Courts.

The Dubai Courts will not normally, of their own volition, question the substance of a DIFC Will of a non-Muslim foreigner and will generally only test for compliance with UAE legal formalities. Therefore, if a non-Muslim foreigner was to bequeath his real estate property to his heirs through his Will, then the Will should be validated and upheld by the Dubai Courts through a succession order unless successfully challenged by a legal heir. The DLD will also generally follow the Dubai Court’s rulings and register properties in favour of the heirs mentioned in the Dubai Court’s succession order.

Accordingly, the enforceability of the Probate Order issued by the DIFC Court is an established process and, obtaining the validation from the Dubai Courts from the date the Probate Order is issued is generally relatively straightforward.

In partnership with the Abu Dhabi Judicial Department, the Abu Dhabi Global Markets Courts offer a similar non-Muslim Wills service and the ADGM Courts Notary Public is licensed and authorised by Abu Dhabi Judicial Department (“ADJD”) to notarise and attest Wills for non-Muslims. However, the ADGM Courts’ Notary Public and Wills Office do not provide a probate service.

Under UAE law, special matrimonial regimes are not explicitly recognised and both spouses retain their own property, provided they are able to evidence property ownership.

Therefore, each spouse remains the owner of his or her property, whether acquired before or during the marriage and administers the property alone.

However, under the UAE Personal Status Law, any spouse may claim their share in matrimonial property upon a divorce or death, based on the respective share of their contribution, such determination is made at the discretion of the judge.

Please refer to the response to Question 13 above.

As noted in our response to Question 13 above, the provisions of the UAE Personal Status Law and the UAE Civil Code clarify the UAE law position whereby a person may elect to have the laws of their domicile to apply to their estate.

In this respect, a distinction is made between Muslims and non-Muslim foreigners as Muslim foreigners will be treated the same as UAE Muslim nationals from a Sharia’a perspective for assets located in the UAE, irrespective of whether they are movable or immovable property and will therefore be dealt with in accordance with the inheritance rules under Sharia’a. If Sharia’a was to apply, then only one third of the assets can be distributed to any persons by Will (who are not eligible heirs pursuant to the forced heirship rules).

A Will made by a non-Muslim foreigner (who elects the laws of his home country) will generally be accepted by the UAE Courts. UAE Courts will not normally, of their own volition, question the substance of the Will of a non-Muslim foreigner and will generally only test for compliance with UAE legal formalities including ensuring that its terms do not conflict with public order.

Given that the UAE does not apply the doctrine of renvoi in relation to immovable assets, it is recommended that a non-Muslim registers a Will with the DWR or the ADGM Wills Office (as the case may be).

In general, it is recommended for an individual to make a Will for various reasons including the following:

1.  to ensure that his estate is allocated in accordance with his wishes;
2. to avoid the immediate freeze of his bank accounts and other assets;
3. to accelerate the court inheritance process and minimise the associated costs;
4. to mitigate potential conflicts between heirs; and
5. to avoid potential issues in terms of the guardianship of children.

In the event that a Muslim does not make a Will, all of his estate will be subject to the forced heirship rules under the UAE Personal Status Law and Sharia’a. However, the estate of Muslim foreigners may be dealt with in accordance with the law of his country as specified in the Will to the extent it does not conflict with Sharia’a or public order. Therefore, a Muslim should make a Will if he wishes to bequeath freely up to a maximum of one third of his estate to certain individuals (or charitable or non-charitable organisations) who would not otherwise be eligible to inherit pursuant to the forced heirship rules. Muslims may attend before a UAE Notary Public to execute and register their Will or, alternatively register a foreign Will provided that it does not conflict with the inheritance rules under Sharia’a or public order.

For non-Muslims, the provisions of the UAE Personal Status Law and the UAE Civil Code would be applicable to their estate. The amendments made to the UAE Civil Code in 2020 clarify that non-Muslims are entitled to elect the laws of their home country to be applied in respect of their estate. However, it is recommended that non-Muslims register a Will with the DWC or the ADGM Wills Office for the reasons explained above even if the only connection with the UAE is that the individual owns real estate property in the UAE.

Non-Muslims only may register their Will in the English language at the DWR which can cover their UAE or worldwide based assets. The registration of a DIFC Will is booked through the portal of the DIFC Courts Will Service. In addition to this, there is a Virtual Registry which enables individuals living abroad to register certain types of wills such as Business Owners Will, Property Will or Financial Assets Will.

Muslims and non-Muslims can either register a Will in:

1. mainland Dubai which generally requires the physical presence of the testator who will notarise a bilingual version of the Will; or
2. Abu Dhabi through the Abu Dhabi Judicial Department (ADJD) portal and video conferencing system.

Upon the demise of an individual in the UAE, a certificate confirming the demise will be issued by the UAE Ministry of Health & Prevention.

The relevant heirs or the executor (as the case may be) would then usually file an inheritance and succession case before the UAE Personal Status Courts for the purpose of obtaining a certificate confirming the succession of the deceased and to obtain an order relating to the distribution of his estate.

As part of such process, if the deceased has a Will then it should be submitted to the Courts in order to be taken into account when issuing the order referred to above. The Courts may decide to nominate and appoint a trustee who will be responsible to administer and liquidate the assets under the supervision of the Court.

Under the UAE Personal Status Law, the burial expenses and the debts must be paid in priority before the distribution of the estate may be carried out.

If the deceased had a valid Will registered with the DWR (DIFC) then the executor who has been nominated will proceed to obtain a DIFC Court order enabling him to administer the estate of the deceased. If the event that the assets are located in mainland Dubai then an execution order is required from Dubai Courts in order to enforce the probate order issued by the DIFC Courts.

The executor shall administer and distribute the deceased’s estate in accordance with the Will, the DIFC Wills and Probate Registry Rules and the laws of the DIFC.

The executor will: (a) ascertain the debts and liabilities of the deceased; (b) pay all expenses, debts and other liabilities as are properly payable; (c) distribute the remainder of the estate to the beneficiaries; and (d) keep accurate accounts and records of their administration.

Unlike the UAE Personal Status Courts, the process before the DIFC Will Service Centre and the DIFC Courts is carried out in English and is largely based on English law.

Unlike the DIFC, the ADGM Courts’ Notary Public and Wills Office do not provide a probate service. Probate applications must be registered with ADJD’s Wills and Probate Office.

Until recently, the concept of a trust was only recognised in the DIFC and the ADGM, being the only financial free zones in the UAE. Each of the DIFC and ADGM has its own common law legal systems considering that the DIFC laws are largely based on English law whilst the ADGM incorporated English law into its legislation (with certain amendments).

Under Federal Decree Law no. 19 of 2020 Concerning Trust (“Mainland Trust Law”), the concept of trust is now recognised in mainland UAE and covers any type of UAE based assets to be placed in a trust. It is worth noting the following key differences between a UAE onshore trust and a common law trust (such as in the DIFC or the ADGM).

1. A UAE onshore trust has a separate legal personality. Unlike the common law system which provides that the legal interest in the trust property is held by the trustee, the UAE Mainland Trust Law provides that the trust itself, as a separate legal person, holds the trust property.
2. The trust will only be legally valid if the trust deed is duly registered with the UAE Ministry of Finance (the details of which are yet to be issued).

Although the Mainland Trust Law includes a number of provisions that are similar to trust laws in common law jurisdictions, the application and interpretation of such provisions by local UAE courts remains unseen.

Foundations are most commonly used to structure succession planning in the UAE, such foundations may be established in one of the following jurisdictions:

1. the DIFC pursuant to Foundations Law No. 3 of 2018;
2. the ADGM pursuant to the ADGM Foundation Regulations; and
3. the RAK ICC pursuant to the RAK ICC Foundations Regulations.

A Foundation can be used for a number of purposes, including but not limited to, private wealth management and preservation, succession planning, tax planning, charitable institutions, financial planning, asset protection, corporate structuring and creditor protection.

The use of a foundation is often the optimal structuring option and, as noted above, the most commonly used for succession planning to hold the relevant assets for the following key reasons:

1. a foundation does not have shareholders or owners, as it holds in its own right the legal and beneficial interest in the assets (often being referred to as an orphan entity) which significantly reduces risks from a litigation perspective given that no heirs should be entitled to successfully claim ownership in the assets of the foundation;
2. a foundation is incorporated as a legal entity with its own distinct attributes and legal personality. A foundation can hold assets in its own name on behalf of beneficiaries. The property and assets of a foundation are not held by it on trust for any other person and has independence due to being self-owned. The beneficiaries of a foundation cannot compel a distribution since they have no interest in its assets or income;
3. a key feature of a foundation (as compared to a common law trust) is the ability of the founder to retain more control. The settlor of a trust has a more limited role and, once assets are settled on trust, the duties of trustees are towards the beneficiaries (unlike a foundation where the fiduciary duties of the council members are towards the foundation itself) rather than the settlor;
4. the governing rules of a foundation (i.e. the charter and bylaws) can be non-revocable or amendable by succeeding boards;
5. a foundation has limited liability status and its council members sit behind the ‘corporate veil’. Potential conflicts of interests that may typically arise between trustees, settlor and beneficiaries, causing disputes and court cases, could be avoided in foundation structures. Having a distinct legal personality provides foundations with flexibility to enter into contracts and arrangements directly, as a company would be able to. This also provides for separation of liability between the founder and the foundation whilst maintaining control of assets;
6. a foundation allow arrangements to continue and therefore provides certainty after the founder’s death. Foundations can be formed for an unlimited period and may continue until their objects have become fulfilled or upon a triggering event to be determined by the founder in the By-Laws;
7. the foundation can hold all type of assets including but not limited to, shares, stocks, securities, real estate and bank accounts; and
8. the beneficiaries of a foundation cannot compel a distribution since they have no interest in its assets or income (unlike trusts, there is no split between the legal and beneficial ownership in a foundation as the foundation is the sole owner of its assets).

A foundation must have a council to manage its assets and to carry out its objects and carry out its day to day management. The founder can appoint the council to the foundation, which acts in a similar manner to a board of directors of a company.

Family Companies Law

Federal Decree Law No. 37 of 2022 regarding Family Companies (“Family Companies Law”) was issued by the President of the UAE on 3 October 2022, which is to come into effect on 3 January 2023.

The enactment of the Family Companies Law is a welcomed piece of legislation as succession planning within mainland UAE was subject to challenges given the rigid legal framework applicable to family businesses under the UAE Federal Companies Law. For instance, the UAE Federal Companies Law:

1. does not entitle a mainland company to create classes of shares;
2. provides for statutory pre-emption rights whereby a transferring shareholder is free to dispose of his shares if none of the existing shareholders exercise their right to acquire such shares within a thirty (30) days notice period;
3. does not provide a suitable mechanism for redemption rights in favour of a shareholder (who owns a substantial portion of the entire issued share capital) to buy out the minority shareholder(s);
4. is not sufficiently flexible to enable family holding companies to buy back the shares of a family member who wishes to sell his shares in the family business;
5. does not address corporate governance matters in a fashion tailored to family businesses;
6. does not specifically address potential risks and issues that may arise as a result of the application of Sharia inheritance rules as codified under the UAE Personal Status Law; and
7. does not provide appropriate mechanisms for dispute settlement for family businesses.

Accordingly, the Family Companies Law sets out a legal framework which addresses a number of issues that families face in mainland UAE when structuring their succession including those identified above.

The provisions of the Family Companies Law are applicable to any family company in the UAE existing prior to, or formed after, the enactment of the law (being 3 January 2023) (“Family Company”) provided that it adopts one of the legal forms set out under either:

1. the UAE Companies Law, except for public joint stock companies and partnerships; or
2. applicable laws and regulations of a relevant free zone (to the extent that they do not conflict with such laws and regulations).

However, a family business would be required to “opt-in” in order to be entitled to benefit from the legal framework set out under the Family Companies Law. This would require a majority of the shareholders of the Family Company to pass a resolution approving the registration of the company as a Family Company in a special register.

The Family Companies Law provides that a Cabinet Decision shall be issued setting out the documents required and the procedure that will need to be followed in respect of such registration.

Also, the Family Companies Law provides that the restructuring by family members of the ownership and transfer of their shares or assets in favour of the Family Company, whether this is effected through sale, donation or usufruct, shall not be considered to be in breach of the provisions of the UAE Personal Status Law provided that such restructuring is carried out during the lifetime of the transferor transferring such assets and shares.

Under Article 361 of the UAE Personal Status Law, every fraud to the provisions governing inheritance by way of sale, donation, testament or other dispositions shall be considered void.

Therefore, this specific provision of the Family Companies Law is aimed at negating the potential risk that may arise in the event that a disgruntled heir challenges the validity of an asset transfer to the Family Company made during the lifetime of the transferor based on Article 361 of the UAE Personal Status Law.

Please refer to our response to Question 19 above and Question 21 below.

Free Zones

Establishment Process

The establishment of a foundation or a private trust company (i.e taking the form of a private company or a company limited by shares) in the DIFC or the ADGM requires the submission of completed online applications through portal accounts of each licensing authority together with the following key documents:

1. certified passport copies of the members of the governing body of the entity (i.e. council members or directors);
2. bank account statements of the founder or individual shareholder (if established by individuals);
3. certified corporate documents of the corporate founder or shareholder;
4. audited financial statements of the corporate founder or shareholder;
5. details of the ultimate beneficial owners;
6. details of the members of the governing body;
7. lease of the office space by the entity to be established;
8. detailed explanation of the source of funds and purpose of incorporation;
9. charter and bylaw of a foundation and articles of association of a private company / company limited by shares; and
10. any other documents are required by the relevant licensing authority.

Once the relevant licensing fees are paid, the application and required documents are submitted, the relevant licensing authority issues the licence of the relevant entity.

Under the relevant trust laws in the DIFC and the ADGM, a trust will be created mainly through the execution of a trust deed or a Will.

Publicly Available Information

The DIFC and ADGM have public registers which set out certain information in respect of entities. In respect of a private company or a company limited by shares, this information typically includes the names of the shareholders, directors, share capital details, date of incorporation and licence expiry date.

In respect of foundations, the publicly available information is more limited and does not include details of the founder or beneficiaries.

Ultimate Beneficial Ownership Information

As part of the establishment process, the DIFC and ADGM, in accordance with the relevant UBO regulations, require that certain information of the identified ultimate beneficial owners of the entity be provided.

In accordance with the relevant UBO regulations of the DIFC and ADGM, the relevant Registrar of Companies (“ROC”) shall collect and process information relating to UBOs obtained by under the UBO regulations only for the purposes of regulation in relation to money laundering and terrorism financing, unlawful organisations and sanctions compliance, or to comply with any other applicable laws in the free zone.

The ROC shall, unless the entity consents to such disclosure, disclose such information only at the request of a regulator, a law enforcement agency or other government authority prescribed by law, and then only to the regulator, agency or authority which made the request, for the purpose of such a request.

Mainland UAE

Establishment Process

As noted above, a Family Company must adopt one of the legal forms set out under the UAE Companies Law which is generally a limited liability company (LLC). For the purposes of establishing an LLC in mainland UAE, completed application forms are required to be submitted to the relevant licensing authority together with the following key documents:

1. passport copies of the individual shareholders;
2. notarised, legalised and attested resolution and corporate documents of the corporate shareholder;
3. passport copy of the individual shareholder;
4. ultimate beneficial owner form;
5. register of shareholders;
6. lease of the office space by the entity to be established; and
7. any other documents required by the relevant licensing authority.

Once the relevant licensing fees are paid, the application and required documents are submitted, the relevant licensing authority issues the licence of the company.

In order to establish a trust in accordance with the Mainland Trust Law, a trust instrument or a Will (which comes into effect after the death of a settlor) are required. Once the relevant document is finalised, a settlor or trustee files an application for registration of the trust document in the relevant register which is to be maintained by the UAE Ministry of Finance. The trust shall come into effect upon completion of the registration of the trust document, and the competent authority will issue an official certificate and a list of properties included in the trust.

Publicly Available Information

It is not possible to carry out formal legal searches in onshore UAE (in contrast to certain common law jurisdictions such as the UK), as there are typically no public registers.

Ultimate Beneficial Ownership Information

The Economic Department of each Emirate, in accordance with Federal Cabinet Resolution No 58 of 2020 on the Regulation of the Procedures of the Real Beneficiary, require that certain information of the identified ultimate beneficial owners of the entity be provided.

In accordance with the UBO Law, the relevant licensing authority shall collect and process information relating to UBOs obtained by under the UBO regulations for the purposes of regulation in relation to money laundering and terrorism financing, unlawful organisations and sanctions compliance, or to comply with any other applicable laws.

The relevant licensing authority shall, unless the entity consents to such disclosure, disclose such information only in accordance with provisions of international laws and agreements in force in the UAE, in particular in accordance with the provisions related to countering money laundering crimes, combating the financing of terrorism and illegal organisations, or to the relevant authorities in the UAE, upon request.

Not applicable to the extent that the UAE CT regime will not apply.

The UAE has no plan to implement tax for individuals that receive income in a personal or investment capacity, including as a beneficiary.  There are no applicable taxes relevant to settlors, founders, trustees or directors in an individual capacity.

From 1 June 2023, there may be UAE CT implications for Family Foundations, Unincorporated Partnerships and other Taxable Persons to the extent that are taken to be carrying on a business in the UAE.  Family Foundations will be able to make an application to the Authority to be treated as an Unincorporated Partnership for the purposes of the UAE CT regime, having the effect that the Family Foundation and/or Unincorporated Partnership would not be considered a Taxable Person in its own right.  However, individual beneficiaries may be still be treated as individual Taxable Persons and potentially taxable in respect of their share of income from the Family Foundation or Unincorporated Partnership to the extent that the entity was conducting activities that would have constituted a Business or a Business Activity.  Where the income is limited to passive income (from savings and investment) the activities would not ordinarily constitute a Business or Business Activities.

Under the DIFC, ADGM and Mainland Trust Law, foreign trusts are, in principle, recognised in the UAE.

For example, in the DIFC, to the extent that the trust is not immoral or contrary to public policy then a foreign trust should be governed by, and be interpreted in accordance with, its governing law.

The provisions of the Mainland Trust Law would apply to a foreign trust if, for instance, the terms and conditions of the foreign trust contradict the governing provisions set out in the Mainland Trust Law or conflict with public order.

However, from a legal and practical perspective, there are potential risks and issues that may arise in terms of a foreign trust owning UAE based assets. Therefore, such potential issues and risks may be mitigated by ensuring that local assets are held through various UAE structures which may ultimately be owned by the foreign trust.

Vesting assets in favour of a trust, whether this is effected through sale, donation or usufruct, should not be considered to be in breach of the provisions of the UAE Personal Status Law provided that such restructuring is carried out during the lifetime of the transferor transferring such assets and shares.

Not applicable to the extent that the UAE CT regime will not apply.

The new tax residency rules, effective from 1 March 2023, along with the new UAE CT regime, effective from 1 June 2023, may operate to bring foreign structures that meet the definition of ‘Taxable Person’ under the new UAE CT regime and will therefore be taxable to the extent that are taken to be carrying on a business in the UAE.

A Foreign Partnership may be treated as an Unincorporated Partnership and therefore would not be taxable in its own right.  However, individual beneficiaries may be still be treated as individual Taxable Persons and potentially taxable in respect of their share of income from the Unincorporated Partnership to the extent that the entity was conducting activities that would have constituted a Business or a Business Activity.  Where the income is limited to passive income (from savings and investment) the activities would not ordinarily constitute a Business or Business Activities. Exemptions may apply if certain criteria are met.

A foundation does not have shareholders or owners, as it holds in its own right the legal and beneficial interest in the assets which significantly reduces potential risks from a litigation perspective.

On the basis that the assets being vested into a trust are longer owned by the settlor, creditors of the settlor are unable to attach such assets. However, creditors may potentially attach the interest of the beneficiary in a trust to the extent such interest is vested, such vested entitlement will crystallize upon the trustee deciding to make a distribution in favour of a beneficiary.

However, please note that the UAE Bankruptcy Law provides for a clawback mechanism in favour of a creditor under certain conditions for a period of two years prior to the filing of such bankruptcy proceedings.

Typically, foundations and trusts are used for such purposes whereas the children and grandchildren are designated as beneficiaries under the trust deed or the foundation’s by-laws (as the case may be). Under such structures, the council or the trustee (as the case may be) will be responsible for managing the assets in accordance with the by-laws of the foundation or the trust instrument.

In respect of the tax treatment of these arrangements, there are no tax implications that are currently applicable.

The future tax treatment of assets held for minor children and grandchildren under the new UAE CT regime will depend on the structure used.  Individuals and beneficiaries that receive income in a personal or investment capacity will remain untaxed while those individuals or corporate structures meeting the definition of Taxable Persons may be subject to UAE CT.  We refer also to the responses given under Question 22 and Question 24.

Individuals are advised to consider trusts, foundations, corporate structures and family companies as a way of mitigating risks associated with potentially becoming mentally incapacitated. As explained above, the potential risks associated with the demise of an individual may be mitigated to a great extent under these types of structures which would similarly apply to an individual who becomes mentally incapacitated.

Issues relating to dealings with property or decisions about medical treatment and nursing homes may also be addressed as part of the overall succession structure.

The UAE is party to the United States Foreign Account Tax Compliance Act (“FATCA”) annual reporting requirements whereby host countries (including the UAE) and relevant Financial Institutions (within each host country) can exchange FATCA data with the US IRS.

The UAE is also signed up to the OECD’s annual reporting requirements in respect of Common Reporting Standards (“CRS”) whereby relevant CRS information is automatically exchanged with tax authorities in other relevant jurisdictions.

The UAE has a widely established Double Tax Treaty (“DTT”) network with many treaties already in force.  Information sharing with regard to specific tax matters that is not covered under FATCA or CRS is largely untested to date as, with limited taxes, DTT application is moot.  However, as part of the new UAE CT regime, the authorities will be “guided by a set of internationally accepted principles to ensure efficiency, fairness, transparency and predictability in the design and execution of the proposed UAE CT regime” (as stated in the UAE CT Public Consultation Document, at paragraph 2.6).  This does not include information sharing per se, however further CT implementing laws and decisions issued by Cabinet in respect of clarifying aspects of the UAE CT regime, may provide further guidance on the extent that information may be shared when applying DTT relief and resolving double taxation matters with other jurisdiction’s tax authorities.

The UAE is party to the United States Foreign Account Tax Compliance Act (“FATCA”) annual reporting requirements whereby host countries (including the UAE) and relevant Financial Institutions (within each host country) can exchange FATCA data with the US IRS.

The UAE is also signed up to the OECD’s annual reporting requirements in respect of Common Reporting Standards (“CRS”) whereby relevant CRS information is automatically exchanged with tax authorities in other relevant jurisdictions.

The UAE has a widely established Double Tax Treaty (“DTT”) network with many treaties already in force. Information sharing with regard to specific tax matters that is not covered under FATCA or CRS is largely untested to date as, with limited taxes, DTT application is moot. However, as part of the new UAE CT regime, the authorities will be “guided by a set of internationally accepted principles to ensure efficiency, fairness, transparency and predictability in the design and execution of the proposed UAE CT regime” (as stated in the UAE CT Public Consultation Document, at paragraph 2.6). This does not include information sharing per se, however further CT implementing laws and decisions issued by Cabinet in respect of clarifying aspects of the UAE CT regime, may provide further guidance on the extent that information may be shared when applying DTT relief and resolving double taxation matters with other jurisdiction’s tax authorities.

The introduction of corporate tax in the UAE will change the economic landscape of the UAE.  Rules regarding corporate tax, transfer pricing (TP), related party dealings, connected persons and kinship tracing will add to the existing compliance and regulatory regimes (which in respect of tax primarily consists of VAT, FATCA, CRS and ESR rules) to increase compliance requirements along with transparency of operations in the jurisdiction.

It is anticipated that once the OECD introduces BEPS Pillar 1 & 2 rules the UAE will also sign up to adopt these mechanisms by way of incorporating the requirements into the domestic law.