United Arab Emirates

*Updated July 2020*

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• Legal system
• Inheritance and succession
• Estate planning
• Taxation
• Residence and domicile
• Other relevant information

Legal system

The UAE legal system is mixed. The country is primarily a civil-law jurisdiction with great influence from Egyptian law, which in turn has its origins in the Napoleonic Code. The Civil Code 1985 (UAE Federal Law No. 5 of 1985) and the Commercial Code 1993 (UAE Federal Law No. 18 of 1993) are the two principal laws that affect day-to-day business life in the UAE. Personal affairs matters are governed by Shari’a law.

Shari’a is the primary source of Islamic law. It is an abstract form of law based on the Quran and the Sunna (sayings of the Prophet Mohammed PBUH), which serves as a complementary source to the Quran. Shari’a is subject to adaptations and different interpretations.

The courts of the UAE have a three-tier structure. Each of the seven emirates has the constitutional right to pass its own independent regional laws. Thus far, this has been used up to the highest level of appeals only by Abu Dhabi (with the Supreme Court of Cassation) and Dubai (with the Dubai Court of Cassation). The five other emirates also have courts of first and second instance, but in matters of final instance they are subordinate, with the exception of the emirate of RAK, to the Supreme Court of Cassation in Abu Dhabi.

Further, the DIFC and the ADGM, two financial-themed free zones, have established their own court systems. Being independent, common-law-based jurisdictions formed under the Constitution of the United Arab Emirates (the Constitution), they have their own laws and regulations (ADGM directly applying English law) except for UAE criminal laws, administrative laws and anti-money laundering regulations, which continue to apply in all UAE free-trade zones (FTZs). ADGM and DIFC both provide for a court of first instance and a court of appeal, which are not subordinated to the Supreme Court of Cassation in Abu Dhabi. It is possible for parties to a contract to ‘opt in’ in favour of either DIFC or AGDM law, and elect DIFC or ADGM courts as the competent authority to hear a dispute.

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Inheritance and succession

Succession

The legal basis for succession is found in the UAE Federal Law No. 28 of 2005 (the Personal Affairs Law) which is a codification of Shari’a law. Subsidiary regulations are provided in the Law No 5 of 1985 (Civil Code) 1985 (the Civil Code). Both laws provide that succession and inheritance shall be governed by the law of the deceased at the time of death. The DIFC WPR was launched in April 2015 via the Practice Direction No. 1 of 2015 and aims to address with certainty succession and inheritance matters of non-Muslims with assets in Dubai and RAK who are over the age of 21. As such, it represents a fundamental step forward for the said emirates.

When the deceased is a Muslim, the Shari’a principles necessarily apply to the distribution of assets to the different categories of heirs. Besides descendants and spouses, forced heirs may include parents, grandparents, siblings, following specific order of preference and relative-blocking rules.

When the deceased is not a Muslim, their inheritance and will may be respectively distributed and enforced in accordance with the laws of their community or country of which they are a national at the time of their death, to the extent that it does not contradict with the UAE public order. Consequently, different inheritance rules may apply to non-Muslims.

The allocation of assets from the estate can be influenced through a testamentary disposition or will, to the extent permitted by applicable laws.

A will executed by a Muslim is enforceable within the limit of one-third of the testator’s estate, and beyond this proportion, within the limits of the share of the major heir who accepted it.

With regard to non-Muslims, prior to the implementation of the DIFC WPR, the only available option in Dubai was a duly executed will in front of a Dubai Notary Public with an express election of the applicable foreign law. That was a condition sine qua non for the application of such law by a competent court. If no will was in place, Shari’a principles would apply automatically.

The DIFC is a common-law jurisdiction and the WPR’s rules are based primarily on the principles contained in the UK Administration of Estates Act 1925 and probate rules. Shari’a principles do not form part of the DIFC WPR’s legal framework. The testator does not need to be a UAE resident to register a DIFC will.

Family law and defined inheritance rules

Yes. Pursuant to Shari’a, there are different categories of heirs. Forced heirs and their respective participation in the succession is as follows (the Personal Affairs Law, arts. 313-361):

• The father (one-sixth when the de cujus leaves a son or grandson).
• The mother (one-third when the de cujus leaves no descendants or siblings or one-sixth when the de cujus leaves descendants or siblings).
• Parental grandfather (one-third or one-sixth).
• Grandmother (one-sixth if she is not debarred from inheritance).
• Brothers and sisters (different rules apply).
• Husband (one-half if the couple was childless; one-quarter if there are children).
• Wife (one-quarter if the deceased was childless; one-eighth if there are children).
• Daughter, if there are no sons (one-half if only child; two-thirds if more than one daughter).
• Daughters of the son.

The son and his male descendants, the father and his ascendants, the brother, whether germane or consanguine, and their descendants, and the parental uncles of the deceased, in that specific order of preference, are considered Asaba (meaning residuary) and are only entitled to the estate if there are no forced heirs. If there are forced heirs, they are entitled to the remainder, if any, and shall receive nothing if the shares of the forced heirs exhaust the whole succession.

One or more sons concurring with one or more daughters shall inherit double the share of the female heirs.

Probate process

The probate must be opened directly before the Personal Status Court. Inheritance issues for non-Muslims are first heard at the UAE Civil Court of First Instance (the Civil Court). The Civil Court must prove the correctness and effectiveness of a will before a file is opened at the Personal Status Court. They can be appealed at the Court of Appeal and finally at the Court of Cassation.

Theoretically, the UAE Courts should cover all assets of the deceased – i.e. assets located both in the UAE and abroad. In practice, however, local courts tend to restrict the probate procedure to assets located in the jurisdiction.

Potential heirs have the ability to object to the inheritance procedure being restricted to UAE assets, but have generally little to no interest in practice to do so. A request by potential heirs for the inheritance procedure to include foreign-based assets may take many months.

When a will is registered with the DIFC WPR, the DIFC courts have sole jurisdiction over the probate proceedings of the testator’s will.

Mental capacity

Provisions regulating mental capacity are found in the Personal Affairs Law, arts.159-177. The undiscerning minor (a child under the age of seven), the insane and the imbecile are considered devoid of capacity. The discerning minor (a child aged seven or over) and the prodigal are considered lacking capacity.

An individual attaining the age of 21 years, enjoying mental abilities and not being interdicted, is deemed as having full capacity to exercise their rights under UAE laws.

Capacity impediments are: insanity, prodigality and illness leading to death.

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Estate planning

Use of trusts in estate planning

The Islamic world (including the legal system in place in the UAE mainland, but excluding FTZs) does not know the institution of the trust per se, but it does provide for a similar concept in the waqf. The latter is traditionally used for charitable purposes and rarely to hold shares in a local company, etc.

However, the DIFC has promulgated the 2005 Trust Law, establishing a legal framework with regard to trusts. This law provides the legal foundation for the establishment of asset-holding arrangements and single-family trusts in the UAE, with the enforcement of trust relationships being executed through the DIFC Courts.

In March 2018, the 2018 Trust Law was enacted, superseding the 2005 Trust Law. It provides an enhancement to the previous law in areas of trust administration and flexibility for the settlor, trustees and beneficiaries.

Corporate trustees established in the DIFC are able to own assets in the DIFC (typically bank accounts) in other FTZs as well as in the UAE mainland. In view of the restriction of foreign ownership in limited liability companies (LLCs), only corporate trustees wholly owned by UAE nationals can own the 51 per cent participation mandatorily to be held by UAE nationals or a company wholly owned by UAE nationals. The remaining 49 per cent participation, which can be owned by foreigners, does not cause any issues in this respect and can be held by a corporate trustee.

Section 14 of the 2018 Trust Law addresses conflict with foreign law providing that any trust under this law is valid and should not be voidable before any foreign law. Most scholars have interpreted ‘foreign law’ in that context as including the provisions of Shari’a law.

It remains unclear whether a local UAE court would recognise a distribution of assets under a DIFC trust made for succession planning if it is contrary to the mandatory Shari’a principles, particularly those codified in the Personal Affairs Law.

A similar system has been introduced in the ADGM, with the enactment of the Trusts (Special Provisions) Regulations 2016 on 17 April 2016.

Despite the Islamic world’s general lack of recognition of the common-law trust, foreign-established trusts are routinely used (by both Muslims’ and non-Muslims’ settlors) to hold shares of corporate structures holdings UAE assets e.g. shares in local companies, real estate.

Use of foundations in estate planning

Currently, the best way for both Muslim and non-Muslims owners to avoid dilution or destruction of value in relation to inheritance matters is to have all UAE assets held by a foundation registered with ADGM or DIFC. Alternatively, non-Muslims with assets in Dubai and RAK can execute a will with the DIFC WSC to have a free testamentary disposition of their assets (located in Dubai and RAK) according to the principles of the common law.

The ADGM foundation regime is designed to advocate appropriate governance controls and establish legacy-planning and asset-protection mechanisms to protect the founder’s wishes and preserve the foundation’s assets. It is likely to be very popular for regional assets for which western (or western-located) solutions are inappropriate: for example, regional real estate, or businesses operating regionally by long-standing Gulf residents (nationals or not). Fundamentally, it is possible for foundations existing and operating in other centres to migrate to ADGM. Similarly, to foreign trusts, foreign-established foundations are routinely used to hold shares of corporate structures holding UAE assets.

DIFC foundations are entitled to own Dubai real estate by virtue of the memorandum of understanding (MoU) entered by the Dubai Land Department (DLD) and the DIFC in May 2017, allowing certain DIFC companies and other establishments to own real estate outside of the DIFC within the emirate of Dubai. ADGM companies and other establishments have the same privilege by virtue of MoU entered by the DLD and ADGM in November 2018. Investors may, therefore, when investing into Dubai real estate, use the DIFC or ADGM’s common-law regulatory framework and their sophisticated structures. The ADGM and the Department of Urban Planning and Municipalities of Abu Dhabi announced a similar cooperative arrangement on 22 September 2019 whereby the registration of title of real estate by qualified ADGM entities, such as special purpose vehicles, foundations and real-estate investment funds, which are established in ADGM, Is facilitated. Such ADGM entities are allowed to acquire properties outside or within Abu Dhabi's investment zones.

ADGM branches of foreign companies are outside the scope of the MoU between DLD and ADGM; so are ADGM foundations, which are currently not permitted to own properties in Dubai, whether directly or indirectly.

On 15 December 2019, the RAK International Corporate Centre (RAK ICC) launched its foundations regime. The RAK ICC foundation regime is the third foundation regime launched in the UAE, after ADGM and DIFC. Regulations provide for very strong firewall rules and other mechanisms to protect the founder’s wishes and the foundation’s assets and allows for great flexibility with regards to the founder’s powers. Some of the regime's key features include:

• the appointment of corporate entities exclusively;
• the continuation or morphing from RAK ICC company to RAK foundation;
• migration and amalgamation of entities; and
• appointment of either ADGM or DIFC Courts to be competent to hear disputes.  

Additionally, by virtue of the MoU executed between the DLD and RAK ICC on 16 July 2019, certain RAK ICC entities can own properties in Dubai.

Types of entities

The legal types of commercial entities, as provided in the new Federal Law No. 2 of 2015 (Commercial Companies Law, CCL), comprise the following: general partnership, limited partnership, joint participation (ventures), public joint stock, private joint stock, limited liability company (LLC) and partnership limited by shares.

The LLC is the corporate structure predominantly used in the UAE. It restricts foreign ownership to 49 per cent, with the remaining 51 per cent mandatorily held by UAE nationals or a company wholly owned by UAE nationals. LLCs must have at least two and not more than 50 partners. Minimal requirements as to share capital have recently been abolished; a capital pay-up at inception is not required. LLCs are especially appropriated for trading, commercial brokerage and manufacturing or industry activities for, primarily, distribution in the UAE and other Middle Eastern countries.

On 30 October 3018, the UAE government issued UAE Federal Law No.19 of 2018 on Foreign Direct Investment (FDI Law). This Law allows for a 100 per cent foreign ownership of an onshore company within the UAE. On 2 July 2019, the UAE Council of Ministers met and approved a 'positive list'. This list covers all the activities benefiting from the FDI Law. The list also specifies 112 economic activities across 13 sectors that are eligible for a 100 per cent foreign ownership. Existing businesses that wish to apply for a switch from a 49 per cent ownership model to a 100 per cent ownership model can do so by obtaining the pre-approval of the local partner and the preliminary approval of the licensing authority of the relevant emirate.

Foreign companies may otherwise establish a branch or a representative office. The CCL makes it optional for a foreign company to appoint a UAE national as agent – which is typically not involved in the operation of the company but assists in obtaining visas, etc., but retains the requirement that a company appointed as agent be wholly owned by UAE nationals. If the agent is a company, it must be fully owned by UAE nationals.

The UAE also has around 30 FTZs in which limited liability entities (an FTZ limited liability company (FTZ-LLC) has two or more shareholders; an FTZ establishment (FTZE) has one shareholder) can likewise be established. An FTZ company can be 100 per cent owned by foreigners and it is entitled to 100 per cent repatriation of capital and profits. The capital requirements to set up in a UAE FTZ vary from AED10,000 up to AED1 million, the latter for an FTZE with the Jebel Ali Free Zone Authority (JAFZA).

An international business company can be incorporated in JAFZA and in RAK Investment Authority (RAKIA). Modelled on British Virgin Islands (BVI) offshore companies, these flexible dematerialised corporate vehicles may be 100 per cent foreign-owned and may conduct any lawful activity as allowed by the registrar. It typically conducts business abroad and it is suitable for holding material or immaterial assets in the UAE or abroad. JAFZA offshore companies are the only type of offshore structures allowed to hold freehold property in the emirate of Dubai.

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Taxation

Income tax system

There is no federal tax legislation regulating income taxes. Per the constitution, all seven emirates are legally in their right to impose individual or corporate taxes, but none of them currently does so.

Personal income tax rates

Not applicable.

Corporate income tax rates

Not applicable.

Capital gains tax

Not applicable.

Non-residents taxable on

Not applicable.

Withholding tax rate (non-treaty)

Not applicable.

Withholding tax rate (treaty)

Not applicable.

Taxation at death

There is no inheritance tax on movable assets. However, the recipient of immovable property located in UAE must pay a transfer fee at the time the property transfer is registered. Such transfer fees range from 0.125 per cent to 5 per cent of the value of the property (depending on the relatedness of the beneficiary to the deceased and the location of the real estate). Additionally, some administrative fees will be charged by other authorities, in the process of executing a will and of administration of an estate.

VAT

As of 1 January 2018, the standard rate for goods and services is 5 per cent, with certain exceptions that are zero-rated or exempt from VAT or outside the scope of VAT.

Other taxes

Not applicable.

Tax treaties

The UAE has secured double taxation treaties (DTTs) with 123 countries: 90 are in force and 33 are pending. Few are still at various stages of negotiation. 

Tax information exchange agreements (TIEAs)

Only a few DTTs have been combined with TIEAs. Finance aims at expanding the network of such agreements. It is worth noting that the Ministry of Finance signed an MoU with the OECD to build a partnership with regard to taxation matters, and the UAE is currently implementing the legal framework and mechanics for the exchange of information. The Global Forum on Transparency and Exchange of Information for Tax Purposes rated the UAE as overall 'Partially Compliant' with the international standard. However, it is important to emphasise that the UAE only established an exchange of information unit within the Ministry of Finance in 2014 and, since then, in its quest towards transparency, the UAE has already signed an agreement with the US implementing the Foreign Account Tax Compliance Act (FATCA), allowing the exchange of information with respect to certain accounts that belong to US citizens and companies. The UAE has also committed to automatically exchange information with other jurisdictions under the Common Reporting Standard (CRS) developed by the OECD. The first exchange started in 2018. 

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Residence and domicile

Special rules on becoming resident

There are six preferred ways for securing resident status in the UAE:

• Company set-up: by far the most common and practical way of securing a resident status due to its straight-forward nature, high level of predictability and low overhead [no minimal investment capital requirement]. It entitles the investor (or employee) to a residence permit valid for two or three years (FTZ: two years / mainland: three years);
• Real estate investment: the holder of a title deed on a property valued at AED1 million-plus is entitled to a three-year residence permit. A property valued at AED5 million-plus qualifies for a five-year residence permit;
• Public investment: investment via a UAE registered company through/into a deposit, an established company, business partnership of AED10 million-plus in all areas mentioned as long as non-real estate investments are not less than 60 per cent of the total investment; qualification for a renewable residency visa for ten years;
• Entrepreneurs:Entrepreneurs will be granted a five-year visa with a possibility for upgrading to a ten-year investor visa;
• Retirees: Over the age of 55 years, qualification for a residence for five years. If able to evidence real estate investment in a UAE of a minimum market value of AED2 million or UAE registered company illustrating financial savings of no less than AED1 million in UAE investments or proof of an income of not less than AED20,000 per month.
• Specialised talents and researchers: Ten-year visa for specialised talents and researchers in the fields of science and knowledge for doctors, specialists, scientists, investors and creative individuals in the field of culture and art.

Special rules on ceasing residence

The visa holder needs to re-enter the UAE at least once every six months. The validity of the residence permit is further conditioned by the company being maintained in good standing (annual licence renewal) and the real estate property not being resold.

Visitors

Citizens of EU Member States have benefited from an advantageous regime since April 2015, pursuant to an agreement between the EU and the UAE, according to which nationals of Member States may stay in the territory of the UAE for a maximum period of 90 days in any 180-day period. Such a visa waiver does not apply to persons travelling for the purpose of carrying out a paid activity during their visit to the UAE.  

Domicile concept for gifts and inheritance

Not applicable.

Taxation of holdings by non-residents on death and of gifts

Not applicable.

Reporting/auditing requirements

No.

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Other relevant information

Asset protection laws

No.

Foreign currency restrictions

No.

Foreign ownership restrictions

Fifty-one per cent of the shares in LLCs must be owned by UAE nationals. The restriction is maintained in the CCL. The FDI Law nonetheless specifies 112 economic activities across 13 sectors that are eligible for a 100 per cent foreign ownership. Foreigners are not allowed to own real estate and be rendered a title deed except if the property is situated in freehold areas determined by the UAE authorities.

AML/due diligence and other requirements and regulatory procedures for advisors

• To establish a trust, the regulations of DIFC Trust Law No.4 of 2018 apply.
• For incorporation, requirements differ depending on the type of corporate vehicle and the regulatory body (FTZ or government economic department).
• To open a bank account, the documents required in general are: account opening forms, passport copy of holder; utility bill as proof of residence; and know-your-customer questionnaire. In case of companies, a resolution to open the account and all corporate documents must be presented.
• The UAE signed the Model 1 B Intergovernmental Agreement (IGA) on June 2015 with the US to implement FATCA that imposed new reporting and withholding obligations on foreign financial Institutions and certain other foreign persons. In addition to this, the G20 implemented and endorsed the automatic exchange of information (AEOI), which was followed up by the implementation of the Common Reporting Standard (CRS). Two internationally agreed standards, namely, the Exchange of Information on Request (EOIR) and the AEOI have been signed by the UAE. This has allowed financial institutions to maximise efficiency and reduce costs in relations to reporting obligations. The CRS regime covers a broad scope of issues, namely
• the scope of financial information reported;
• the scope of account holders subject to reporting; and
• the scope of financial institutions required to report.
• New anti-money laundering (AML) rules came into force with the introduction of UAE Federal Decree-Law 20 of 2018 on Anti Money Laundering and Combating the Financing of Terrorism and Illegal Organizations, setting out the types of businesses that are subject to AML law as well as the scope of duties for these entities. These rules build on the existing AML regime (Federal Law No.9 of 2014) that was deemed to be only 'satisfactory' by the FATF when the UAE's AML framework was reviewed. The FATF provided recommendations at the time with regards to customer due diligence ("CDD") requirements and designated non-financial businesses and professionals, which were then incorporated within the new AML rules.
• The new AML rules recommends the establishment of an independent Financial Information Unit within the Central Bank as well as setting up a committee under the chairmanship of the Governor of the Central Bank titled 'The National Committee to Counter Money Laundering, Combating the Financing of Terrorism and Financing of Illegal Organisations.'

Key resources for further information

WEBSITES

• Dubai Department of Economic Development: www.dubaided.gov.ae
• Dubai Department of Tourism and Commerce Marketing: www.dubaitourism.ae
• UAE Free Zones: www.uaefreezones.com
• Dubai International Financial Centre: www.difc.ae
• Abu Dhabi Global Market: www.adgm.com
• UAE Ministry of Finance: www.mof.gov.ae

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