On 10 February 2020, the UAE Ministry of Finance (MOF) unveiled its trusts law, announcing that it will help increase the “competitiveness” and “attractiveness” of the country’s financial services sector.
Decree-Law No (19) of 2020 offers individuals the right to transfer assets, as a financial covenant, to a trustee to manage and grow.
The law applies to onshore trusts and does not include the free zones, which may have their own regulation.
It permits qualified advisers and firms to set up a trust and manage the assets, which can be both movable or fixed.
Contained within the law is a section for private trusts, which allows securities trading. Private trusts can further be used to accumulate pension funds, with beneficiary arrangements for clients, much like a UK structure in its basic form.
Tim Searle, chairman of Globaleye, said: “This announcement certainly helps solidify the UAE as a robust financial hub in the Middle East and demonstrates the trajectory of creating a world-class jurisdiction for financial services.
“It is good that the MOF are taking this view since it should encourage inward foreign direct investment and give greater comfort to investors in the country.”
Client impact
The law is a game-changer, as previously civil law jurisdictions like the UAE and most of Europe did not recognise trusts as a concept, which effectively involves the separation of the legal and beneficial ownership of an asset.
It adds another string to the financial planning bow for clients in the UAE.
Sandeep Ghosh, senior associate at Holborn Assets, said: “The real beneficiaries of the new law will be families with wealth or business assets who have traditionally looked at offshore solutions for their asset protection and succession planning.
“The new law provides the opportunity for this process to be localised, thus simplifying financial structures, maintaining local administration and advice, and avoiding the costs and laborious nature of accessing offshore solutions to meet the same objectives.”
Tom Bicknell, partner at Pinsent Masons, added: “It provides a means of managing their assets that, if they come from common law markets such as the UK, US and most commonwealth countries, they will be familiar and comfortable with.
“It means they can appoint a professional wealth manager and/or trustee to hold assets on their behalf based on certain investment and trust directives and be comfortable that, should any concerns arise, they can resort to statutory law to hold the trustee to account and if necessary, unwind the trust.”
Similarities to the UK system
The UK has a very complex and comprehensive trusts sector, which has been in place for many years.
For many clients in the UAE, they will be used to the UK system.
So, will the trust sector in the UAE be similar?
Bicknell said: “Yes in that it reflects most of the commonly understood legal concepts that make up trusts law. I would say it also takes into account advances made in certain other jurisdictions such as Cayman and the Channel Islands which have both innovated with their trusts regimes to really create new and exciting structuring options for clients.”
Ghosh added: “The UK has a very old and more comprehensive trust environment, where trusts can be set up for multiple purposes, with varying designs and purposes. Estate planning is still central to the trust industry in UK, but factors that influence the type of trust chosen may be determined by tax consequences, especially inheritance tax, or by the wishes laid out in an individual’s will.
“However, the basic structure and roles, for instance having a settlor assigning assets to qualified trustees would remain very similar.”
Boosting advisers toolkit
The clients will not be the only people affected by the changes.
The law will also give advisers the opportunity to expand their services and give more options to clients when discussing financial plans.
Globaleye’s Searle added: “We collaborate with trust companies already, not only in the UAE but further afield, since it is an intrinsic part of any financial plan and is important for clients to ensure they have protected their assets in the event of their demise, so they pass quickly to those intended.
“Trustees operating in the UAE have done so through the offshore centres since there was no onshore equivalent/legal structure to allow them to do so due to the conflict between common and civil law.
“I anticipate some of the traditional trustee providers will look carefully at how they promote their services in the UAE moving forward and also how consumers will embrace having their assets protected in the UAE as opposed to more traditional offshore centres offering trust services.”
Bicknell added: “Most UAE advisers will already be recommending and advising on trust structures to their clients in the UAE, however they will be talking about trust in jurisdictions outside of the UAE.
“This should mean that a lot of business they had to pass over to their colleagues or contacts in other jurisdictions should be able to be kept on the ground here, so to speak. It should also encourage holding assets in UAE ownership structures which should be a boon for the both the domestic asset management industry but also the wider UAE economy.”
Retirement hub
The UAE has always been a go-to jurisdiction for expats.
But this law, alongside recent changes in the country to business ownership and inheritance, have bolstered the UAE’s status as a hub for retirement.
Bicknell said: “It has a lot of interesting repercussions, particularly around wealth succession that may lead more people to consider the UAE as a retirement option.
“I would say how these repercussions eventuate will take time to understand and, as I mention above, will depend on how widespread the trusts regime is adopted across the market. But certainly, it will be perceived as a good thing.”
Ghosh added: “The introduction of this decree enables asset-owning residents to shift their mindset from temporary to long-term planning in the UAE.
“Coupled with the golden visa and recently announced citizenship programme, there are now reasons aplenty for people to reconsider their retirement destinations.
“The UAE would offer an attractive combination of asset protection, pension accumulation and drawdown facilities, as well as succession planning solutions and long-term residency for those who wish to make their permanent home here.”
