New UAE Laws – the financial implications for small businesses
While the announcement stated that these changes will take place with immediate effect, by Presidential Decree, the actual text of the legislation has not yet been published so some information may be subject to change or further clarification. The reforms are wide-ranging and relate to matters governing personal relationships, including inheritance rules and divorce.
What will be of interest to business owners will be the guidance regarding the division of assets on death. Previously, all assets in the UAE, for expats and citizens alike, have been governed by Sharia Law, the law of the UAE but this is set to change. Moving forward, expats will be able to have the inheritance rules of their home country applied instead and interestingly, this applies to non-Muslims and Muslins alike. This change will bring the UAE in to line with many global business hubs and increase confidence in the UAE as a place to do business.
Expats who own a business can now be confident that in the event of their death, their business and/or shareholding will pass to their spouse and children, depending on the exact rules in place in their country of citizenship. This will be preferred by many expats, in preference to the traditional divisions under Sharia law which means that a percentage of assets go to parents and potentially other relatives, with male relatives being favoured. Non-Muslim expats have been able to write wills to this effect for a while with each subsequent change widening the reach of local wills, but this was never previously an option for Muslim expats, no matter what their preferences.
Considering the large percentage of expat Muslims in the UAE, this change provides for assets to largely pass to immediate family, rather than other relatives and will, in many cases, make the distribution of assets simpler.
One major exception, not covered by the new legislation, is the ownership of property. Wherever it is in the UAE, property will still be subject to distribution under Sharia law unless an appropriate will is in place.
Where we have seen companies base themselves outside of the UAE, often in offshore jurisdictions, to avoid potential inheritance issues, this should no longer be of relevance and such business can be more confident in setting up in the low-tax environment of the UAE, confident that the succession of a business, and the distributions of personal assets, can be in line with their preferred requirements.
It should be made clear that home country inheritance rules being applied does not mean that wills are not required. In each case, we have to consider the actual rules of the country of citizenship and whether these rules are suitable and indeed required. In some countries, assets will largely go to a spouse, in others there are systems of ‘forced heirship’ where the distribution of assets in death is laid out in law and assets pass to ‘protected heirs’, generally a spouse and children, no matter what the individual requires. Often, a person prefers a specific distribution that is not the rule in their country of citizenship and a properly written will allows for that to be the case, even in the UAE for non-Muslims.
In addition, all business owners should have succession agreements in place, shareholder agreements where there is more than one business owner, and in many cases a Power of Attorney is also useful. In all situations, taking expert advice when things are going well is advisable so as to avoid potential future problems, as well as properly protecting dependents should the worst happen.
These latest changes, added to recent announcements about remote working visas and retirement visas, will certainly make the UAE more attractive to individuals, investors, and global companies and, in turn, boost the economy. A buoyant economy is good for business generally and these changes are forward-looking and a very positive move for the UAE in what is a difficult time, financially-speaking, for many economies.