Nominee vs. Trust Agreements in the UAE: Which One Do You Really Need?

Introduction – Nominee Agreements vs. Trust Agreements in the UAE

Nominee and trust agreements in the UAE are often mixed – as the case that motivates the present publication.

When it comes to structuring ownership of assets—whether that be real estate, company shares, or other wealth-generating interests—many clients in the UAE ask a crucial question: Should I use a nominee agreement or a trust agreement? While both structures allow for the separation of legal and beneficial ownership, they operate in very different legal contexts and serve different long-term purposes.

In this article, we explore how nominee agreements and trust agreements function, their respective advantages and limitations, and what to consider when choosing the right vehicle for asset protection, succession planning, or business structuring in the UAE.

What Is a Nominee Agreement?

A nominee agreement is a private contractual arrangement where one party (known as the nominee) agrees to hold a specific asset—such as company shares or real estate—on behalf of another party, referred to as the beneficial owner. Under such an agreement, the nominee becomes the legal titleholder, often appearing as the owner in official records or registers. However, they are contractually obliged to act in accordance with the instructions of the beneficial owner, who retains full control over the asset.

Nominee agreements are commonly used in the UAE for shareholding arrangements, particularly where confidentiality or local ownership requirements play a role. For instance, before the relaxation of foreign ownership restrictions, many expatriates used nominee agreements to appoint Emirati nationals as shareholders in mainland companies, while retaining beneficial ownership and control themselves.

That said, nominee agreements can also be relevant in investment structures where parties wish to shield the identity of the real owner from public disclosure, conflicts of interest with other activities or where foreign ownership restrictions still apply (such as in certain sensitive sectors).

What Is a Trust Agreement?

In contrast, a trust agreement is a legal structure governed by trust law, where one party (the settlor) transfers assets to another (the trustee), who holds and manages those assets for the benefit of a third party (the beneficiaries). The trustee assumes legal ownership of the assets but must manage them in accordance with the terms of the trust deed and in the best interests of the beneficiaries. This creates a fiduciary relationship, legally obliging the trustee to act with loyalty, care, and transparency.

Trusts are ideal for long-term wealth preservation, family governance, and succession planning. They can be used to ring-fence assets from business risks, protect vulnerable beneficiaries (such as minors), or maintain control over how wealth is distributed across generations.

While the UAE does not recognize trusts under federal law (i.e., in “onshore” UAE), both the DIFC (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market) offer robust trust regimes based on common law principles. These regimes allow for the establishment and administration of trusts in a legal environment that is internationally recognized and enforceable.

Key Differences Between Nominee and Trust Agreements

Although nominee agreements and trust agreements may appear similar in that they involve one party holding assets on behalf of another, the legal implications and structural complexity of each are substantially different.

A nominee agreement is fundamentally a contract. It relies on mutual consent and clearly defined obligations, but does not impose fiduciary duties unless explicitly included. The nominee has no legal obligation to act in the best interest of the beneficial owner beyond what is stipulated in the contract. This makes such agreements vulnerable in cases of dispute or bad faith—especially if not properly documented.

On the other hand, a trust agreement is a comprehensive legal relationship governed by statutory law, especially when created under DIFC or ADGM jurisdictions. Trustees are bound by fiduciary obligations, which significantly enhance the level of protection available to beneficiaries. Trusts also offer continuity beyond the life or capacity of the settlor, making them particularly suitable for inheritance planning and intergenerational wealth transfer.

Another key difference lies in enforcement and protection under UAE law. A nominee agreement in the UAE, particularly if implemented onshore, may be more difficult to enforce in court if challenged. There is a growing awareness among courts of such structures, but without robust documentation and ongoing compliance, the arrangement may be vulnerable. Trusts created under DIFC or ADGM laws, by contrast, are enforceable in their respective courts and offer greater legal certainty.

Which Option Is Right for You?

Choosing between a nominee agreement and a trust agreement depends on your goals, the nature of the asset, and your risk tolerance.

A nominee agreement may be appropriate for short-to-medium term arrangements where discretion or compliance with legacy regulations is necessary. It is generally simpler and more cost-effective to implement but offers less protection in case of disputes or changes in circumstances.

A trust agreement, while more sophisticated and typically more costly to establish, provides a durable legal structure suited for long-term planning, especially for families with international ties or significant wealth. It can incorporate governance mechanisms, protect vulnerable beneficiaries, and ensure the settlor’s wishes are carried out even after their death.

Considerations in the UAE Context

It is important to emphasize that onshore UAE does not recognize trusts in the way that common law jurisdictions do. Therefore, clients seeking to establish a trust structure must turn to DIFC or ADGM, each of which has its own trust laws and courts. These jurisdictions offer modern, flexible frameworks and are especially attractive to international clients familiar with common law concepts.

Conversely, nominee arrangements are frequently used in onshore settings but should be approached with caution. If the agreement is poorly drafted or not supported by appropriate resolutions, declarations, and powers of attorney, the beneficial owner may be exposed to legal and financial risks. Extremely important to register the ultimate UBO with the authorities.

Moreover, inheritance laws in the UAE differ for Muslims and non-Muslims. For non-Muslims, setting up a trust may allow for a more predictable and customized inheritance pathway, especially in situations involving cross-border families, stepchildren, or unequal distributions.

Conclusion to Nominee and Trust Agreements in the UAE

While both nominee agreements and trust agreements allow for the separation of legal and beneficial ownership, their legal foundations, levels of protection, and practical uses vary greatly. Nominee agreements are best suited for straightforward, short-term arrangements requiring confidentiality or formal compliance, while trust agreements offer robust legal protection for families and individuals planning for the future.

We hope this post will help you and remain available for any questions regarding this post of general application.

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*The information on this page is not intended to be legal advice. This article is intended to provide an initial introduction to the key differences between trust agreements and nominee agreements in the UAE.