Overview
Dubai International Financial Centre (DIFC), one of the most reputed international financial hubs in the Middle East, North Africa and South Asia (MENASA) region, has unquestionably proven considerable resilience despite the devastating covid 19 pandemics and performed much better than its GCC peers. The centre has also recently amended some legislation to further promote the regulatory framework and bring it at par with international best practices for attracting FDI through DIFC company formation.
As individual wealth and private capital have grown significantly amongst the western and middle eastern countries, there has been a tremendous surge in Single Family Offices (SFOs) in the DIFC. For more than a decade, the International financial centre has been considered as the leading jurisdiction for the Dubai Financial Services Authority (DFSA) regulated SFOs assuring a high standard of regulatory involvement to family-owned businesses and wealthy families operating in the centre.
The regulatory framework was launched by DFSA in June 2008 and helped family-run businesses achieve a high standard of operation in managing their assets and wealth including tax and succession planning.
Why should you set up SFOs in the DIFC?
Incorporation of SFOs in the DIFC are preferred by ultra-wealthy families due to several reasons, some of which are
- No tax on profits & corporate income renewable for 15 to 50 years
- A sound and transparent system of dispute and conflict resolution
- A regulatory framework founded on English Common Laws
- No capital gains tax
- Full confidentiality of transactions
- No public register of directors and shareholders
- No inheritance tax
- Availability of international banks
- Availability of professional expertise in banking and Fintech
Why are the activities carried out by DIFC SFOs?
As privately managed wealth management enterprises, SFOs carry out certain activities which include
- Providing financial solutions to Ultra High Net Worth Individuals (UHNWIs)
- Protecting family wealth
- Managing investment risks
- Family governance and lifestyle management
- Succession and Tax planning
SFOs in the DIFC can have different legal structures either as a company limited by shares or, as a limited liability partnership firm.
Why is DIFC Regulatory Framework ideal for SFOs?
Businesses in the Middle East are predominantly family-owned totalling more than 75% of companies with a whopping amount of private assets exceeding many trillion dollars and always in crucial need of a robust, transparent and specialised legal and regulatory framework for handling such enormous wealth. As opposed to traditional financial institutions, SFOs don’t have any direct public liability and all the shareholders are descendants of a common ancestor.
DIFC has reaffirmed its commitments as a leading SFO hub for local, regional and global UHNWIs and recognized the requirements of entirely different sets of rules and regulations for them and proposes to make necessary regulatory amendments only after due diligence and consultations with the companies and keep them away from any regulatory constraint.
What is the new legislation that can impact SFOs in the DIFC?
Two newly enforced legislations can have a direct impact on the preservation and protection of family-owned wealth; the Law 9 of 2020 regulating Family Property Ownership and the Law 19 of 2020 regulating the Federal Trust Law.
The ownership law allows any family in the Emirate of Dubai to formally record how the moveable and immoveable wealth owned by Dubai based families from all religions and nationalities shall be owned, managed and distributed using a legal and notarized Family Property Contract. The family wealth, however, will exclude certain types of shares.
The introduction of the Federal Trust Law is unique and mandates a pension scheme for the benefits of employees of family-run businesses.
Takeaway
A well designed regulatory framework is integrated with robust support services in the DIFC fascinating successful and effective operation and management of SFOs.
A DIFC Startup license is mandatory for establishing an SFO and needs an application form to be filed with the DIFC, along with supporting documents including a detailed activity plan with financial information and the details about the management team and key advisors.
Autor Bio:
Ms. Priyanka Bhandari is part of the management team at IMC. She has vast experience is Business Consulting in the Middle East region. She spearheaded our Digital Marketing initiatives, and her core expertise lies in communications management. With a Masters in Communication she is at the forefront of our client relationship Management, Media and Marketing Division & Business Development opportunities amongst other responsibilities.
