5 tools for private clients in the UAE

Private clients in the UAE have a wide-array of available tools. One of the most eye-catching global economic success stories of the modern age has been the rise of the United Arab Emirates (UAE), which has emerged as a strategic hub for businesses and investors[1] in only less (much less) than 50 years – this past 2 December 2021.

The major contributory factor to the UAE’s success in the financial sector is its economic strength as a solid proposition for investors, venture capitalists and businesses, thanks to (a) its robust legal structure, (b) pro-business regulatory environment paired with (c) a tax-friendly ambience, (d) low energy costs and (e) the shortfall of limitations on trading[2] and repatriation of profits, making it the ideal tax base. It is not surprising the increase of available tools to avail from the cocktail of benefits[3].

The main challenge for private clients in the UAE is to remain competitive, regionally and globally[4].

Incentives for Private Clients in the UAE

1. TAX INCENTIVES

The UAE does not impose income tax on individuals, investors, or corporates, except for oil companies and branches of foreign banks, today. This is highly welcomed by private clients in the UAE.

Recently, the UAE has announced the introduction of a corporate tax rate of 9% on taxable income exceeding USD 102,000 from 2023 for onshore UAE companies. Free Zones are to stay away from the upcoming corporate tax.

Consequently, in the UAE, today there’s :

• No Personal Income Tax
• No Withholdings
• No Capital Gain Tax
• No inheritance Tax

In 2023:

The UAE has announced starting to implement corporate tax at 9% for taxable income exceeding 375,000 UAE dirhams (USD 102,000). Corporate Tax shall be applied to onshore companies and onshore activities. Lear more about the announced UAE Corporate Tax here.

2. CORPORATE INCENTIVES

• Investing in All Economic Activities: Foreign investors can invest in trade, industry, agriculture, services, education, health and construction along with several other sectors across the UAE.
• Company Ownership 100%: Investors can establish and fully own most of their companies in the UAE since it is not mostly required to have a local national sponsor/agent. This allows foreign investors to fully control their shares in companies, unless any decree or resolution stipulates otherwise. Today national control is reserved for a minimum number of activities.
• No Minimum Capital: The UAE law directs investors to specify the value of capital in articles of incorporation and company statutes but does not require a minimum amount for limited liability companies. The exception applies in regulated activities or a reduced number of free zones.
• Protection of the investments: The UAE has signed 101 agreements to encourage investments and protect them from all non-commercial risks like nationalization, expropriation, sequestration and freezing. They also aim to allow the establishment of investments and licensing such investments and confirm the free transfer of profits and other returns in a freely transferable currency.

3. FREE ZONES

As an extension of the corporate entities, more than 40 free zones allow tax exemptions and 100% ownership for foreign investors.

While each Free Zone has incentives to attract people, each area enjoys common rewards for prospective clients that include import and export duty exemption, tax exclusion benefits, the eligibility for repatriation of benefits and free transfer of funds. Some Free Zones are generalist, others are specific.

Choosing the right free zone is not always straightforward, as the ultimate selection is based on the business activity to be undertaken, location of future clients and other reputational considerations.

Our Managing Partner explains the differences in her YouTube channel: video in English and video in Spanish

4. STRUCTURING AND FINANCING INSTRUMENTS for Private Clients in the UAE

Private clients in the UaE can benefit from interesting tools. The two most sophisticated jurisdictions in the UAE for the application of structuring and use of financing instruments are the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).

These jurisdictions, DIFC and ADGM are free zones of a different kind because they are governed by common law with extended or full contractual and testamentary freedoms.

Trusts

The enactment of the UAE’s 2020 Trust Law is a significant development in the scope of trust jurisprudence in the UAE. A trust is a legal obligation based in a relationship between three entities, generally referred to as the settlor (the person who creates the trust), the trustee (the person in charge of the trust) and the beneficiary (the person who receives benefits from the trust). In the UAE, trusts are not subject to income tax. Legal ownership of the trust sits with the trustees and beneficial ownership with the beneficiaries.

Foundations

Foundations have become a popular vehicle for wealth structuring and succession planning in the UAE. A foundation is an independent legal entity derived from civil law jurisdictions, as opposed to a trust which is a common law concept based on the relationship between several characters.

Its operation is simple, the foundation’s founder bestows assets to the foundation that will retain those assets in its own name and separately from the founder’s personal wealth.

Holdings Entities: RAK IBCs and ADGM SPVs

 A Holding Company is a business entity which main purpose is to hold the controlling stock or membership interests in other operating companies (subsidiaries).

The holding company can own 100% of the subsidiary, or it can own just enough stock or membership interests to control the subsidiary (more than 51%).  The main advantage of using a holding company remains in the liability protection that it grants to the subsidiaries since the decision of placing the assets of operating companies in separate entities results in a liability shield. As a result, it reduces the personal exposure to the risks and liabilities, minimize the effective level of any withholding taxes on the income and capital gains and can be used to reduce inheritance tax through structuring the assets through one of these vehicles.

Holding companies are widely used in the UAE for real estate assets holding.

5. GOLDEN VISA

For investors with a foot in the UAE, the new golden scheme may be of interest.

The UAE has started issuing 10-year golden visas available to investors and entrepreneurs with a financial solvency of at least AED 10 million, and to talented individuals. This measure corroborates the compromise level of the UAE with educated and funded residents. To date the longest visa was for a maximum period of 3 years.

We have left this attraction for last as we are mindful that it may be of assistance to a reduced number of investors wishing to have their own feet and families in the UAE with the attraction of a 10 year stability.

Conclusion

The UAE has laid out the tools for private clients in the UAE to excel. The selection of the right tools will require a practical look into the available assets and the willingness to commit to the UAE. Experience tells that fast decisions may render initial decisions futile. Practical initial advice is highly recommended to robustly set feet in the UAE initially or to continue to organise with the business growth of enterprises in the UAE.

For expert advice you may consider our offering here.

**Important Notes

[1] The UAE strengthened its position as an ideal destination for investment, as it managed to maintain an advanced ranking in the World Bank’s Ease of Doing Business Index 2020 which includes 190 countries.

[2] Government tariffs in the country range from 0% to 5%. Thereby, the UAE leads global and regional trade, ranking 3rd worldwide, and 1st in the Arab world in the arena of re-exporting.

[3] The UAE adopts a diversified economy where non-oil Sectors including trade, industry, transport real estate, information technology and Science as well as advanced Service Sectors such as education and health account for 70% of the total GDP.

[4] The government of the United Arab Emirates is injecting capital into its strategic projects in line with its vision and objectives of UAE Centennial 2071. The total contribution of the government sector to the implementation of investments amounted to 170.8 billion dirhams, or 57.8% in 2018.