14 Jun 2019

A wealth of advice - June 2019


The holy month of Ramadan was by no means a quiet month for us at Stephenson Harwood Middle East, as we used the time to reflect upon current trends and market practices in the private wealth world around us.

I've just returned from an exciting time in London where we hosted the 5th Annual Stephenson Harwood Global Private Wealth Forum. It was a fantastic "sell out" event as the Global Private Wealth Team came together to cover topics and updates from each region and deliberate over the fate of Brexit, Substance Rules, the impact of the New Transparency Rules in the PRC, navigating tax codes in the US and UK and whether the UAE is the new Private Wealth Global Hub?

The UAE Foundation Regime

I promised an update on the current UAE Foundations regimes, of which there are two; the DIFC Foundation based upon the DIFC Foundations Law 2018 and the ADGM Foundation based upon the Foundations Regulations 2017.

Whilst both options are vociferously being touted as the new succession planning option for both Shari'a and non Shari'a solutions, the real question of the hour is; "do they really and truly work"

The answer to this question, (that many have pondered over endlessly), is of course dependent upon the main purpose for using the Foundation, which will differ from client to client.

For some it provides a robust, long term succession planning solution with watertight confidentiality coupled with a significant degree of anonymity.

For others the appeal lies in the fact that it provides an excellent governance model enabling business interests to operate in an uninterrupted, efficient and seamless manner, despite tumultuous changes in the family empire or business ecosystem.

Whereas for others it allows ownership of properties to be effectively dealt with in a tax efficient manner.

It was this last point that had many of us deliberating, whilst we ascertained if it really and truly did provide a succession planning solution for the ownership of immoveable property in the UAE.

Q&A with the DIFC on the DIFC Foundation 

In an attempt to clarify matters for everyone in the private wealth community, click here for the written responses received from the DIFC itself, to questions that many have asked.

Composition of the Foundation's Council of Members

Upon closer review of the governing law and regulations for both UAE Foundations, interestingly, unlike other jurisdictions, there is no specific defined criteria in terms of qualifications and eligibility of a Council Member, other than a general assumption of reasonableness, good faith, prudence, care, diligence, skill etc. 

For those corporate service providers keen on expanding their offering into this sector, a word of caution from me personally: "Start as you mean to go on and help us create an environment of excellence, by creating Councils comprised of individuals who would, in other jurisdictions, be truly eligible to serve as a Council Member".

Advising and assisting clients is not just about establishing and incorporating a Foundation. What should be paramount is to assist clients with the ongoing governance and management of the Foundation by providing the services of those individuals that are best qualified and able to add value to the Council, especially when reviewing and evaluating strategic and significant decisions. Until and unless specific qualifications and criteria are introduced, as service providers in this industry, we should collectively adhere to an implied standard of excellence, so as to ensure that all UAE Foundations are governed using best practice international standards of governance.

You heard it here first ….

Having worked closely with the relevant authorities in the UAE, I am delighted to be able to heave a sigh of relief and share that the first DIFC Foundation, whose assets comprise of property in the Emirate of Dubai, is finally well on its way to being registered!

Furthermore, we are liaising with the DIFC to help put in place a model Charter and set of By Laws for their DIFC Foundation which will help the Private Wealth Community and encourage the uptake all round no doubt – watch this space closely and expect to see something in the upcoming weeks! 

Hot off the Press - The New DIFC Employment Law of 2019

Just as this edition was going to print, we received word on 12th June, that His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, has enacted a new DIFC employment law, that will be effective from 28 August 2019. 

Interestingly there are two short articles in the law that relate to pensions and end of service gratuity payments although we are awaiting final details for the Employee Workplace Savings (DEWS) scheme that the DIFC Authority recently announced will be introduced to revolutionize end-of-service benefits in the DIFC, moving from a defined benefit scheme to a defined contribution scheme with a voluntary savings component for employees. Given the buzz on the ground though, we do believe that changes will be announced in the not too distant future. As the age old adage goes "patience is a virtue".

Change is afoot in India – or is it? 

Yet another topical point of debate, especially now that the elections are over and it is business as usual in New Delhi, is that of inheritance tax and estate duty. Word on the street is that the new budget in July 2019 shall see the introduction of some form of taxation. One just doesn’t know what? Will it be a new form of inheritance tax or a revised regime of Estate Duty that was previously abolished in 1985?

Whichever the case, one thing that was fairly evident as the results were announced, was the bustle of activity amongst the Private Wealth advisory community who were all gearing up to work with clients to create tax efficient succession planning solutions

If nothing else, the speculation (that is so rife) will certainly force many families to seriously consider the consequences of such impending legislation. As mentioned in the first edition of my newsletter, it is now no longer a question of if, but more one of when?