- Asset Protection by Corporate Structure in Free Zones of UAE. Key Issues

Asset Protection by Corporate Structure in Free Zones of UAE. Key Issues

Asset Protection by Corporate Structure in Free Zones of UAE. Key Issues

In the free zones of the United Arab Emirates, such as the Dubai International Financial Center (DIFC) for example, you can apply effective asset protection strategies and techniques. Here you will find the best solutions in the field of assets protection, business advisors who will help you find the best solution to protect your business and property: trusts, offshore and onshore companies, and others. Asset and capital management professionals and corporate service providers such as our company provide their services both to local and foreign clients.

Why is the UAE such a great place for corporate asset protection planning? Well, first of all, there are no taxes on personal and corporate income, both at the federal level and the level of individual Emirates. There are no restrictions on the withdrawal of capital, and no currency control. Thus the ease of transferring money to and from the country is an important advantage of the UAE. Secondly, the procedure for creating a legal entity is quite simple here, as well as the bank account opening. A foreigner may fully own a company in the free zone, or on the mainland (the local partner is required only for certain activities). Besides, the United Arab Emirates are considered to be one of the safest and most politically stable countries in the region, a haven for investment. Local legislation is designed to make the country as comfortable and attractive for foreign investors as possible.

A company in the Emirates can be used to pay and receive royalties, dividends or interest. Besides, the UAE has signed double tax treaties with more than 70 countries around the world, including China, Japan, Switzerland, Germany, Cyprus, etc. Thanks to these agreements, you can structure investments in a tax-efficient way when you become a UAE tax resident.

Here, we take a look at some legal asset and business protection strategies that can be implemented in the UAE.

Asset protection strategy No1. – Property protection trust in Dubai. Waqf

A trust creates fiduciary obligations between the party owning the property, also known as the trustee, and the beneficiary or party entitled to make a profit from the trust.

According to the Islamic finance law, which operates in the UAE, trusts in are known as “Waqfs.” Literally this means to contain or preserve, trust is a voluntary dedication of personal capital to some deed, good from the Shariah point of view. The provisions of Dubai Act 14/2017 governing Waqfs in Dubai are applied to all the trusts that exist in this Emirate, regardless of whether a person who creates the trust is a citizen of the country or not. According to this law, trusts must comply with one of the following types:

  • Family donation. In this case, the property in a trust is in the interests of the founder, his children, and other relatives or persons selected by the founder;
  • Charitable donation. This is when the profits from a property in trust management are allocated to the public or for a specific initiative or project that has been determined by the founder;
  • A joint donation, which requires the income from property held in trust to be allocated partly to the family, and partly donated to charity.

In addition to the general law of the Emirate, there is an internal order in the free zone DIFC, according to which the objectives of the trust are not limited to the types listed above. Instead, a trust is considered legally valid, provided its goal is clearly defined, for example, property protection trust, or foreign asset protection trust.

Asset protection strategy No.2 – Register company in free zones of Dubai, UAE

Foreign citizens can rely on the confidentiality and safety of their activities and transactions in the UAE. Therefore many expats want to avoid the pressure they face in their own jurisdictions, due to various unfavorable factors, so they register an offshore or onshore company in the free zones of the UAE and such companies become the holders of various assets outside of the UAE. What does such a strategy to protect your capital give to a foreigner?

If your assets are located in another country, then transferring their ownership to a jurisdiction such as Dubai means greater confidentiality, the advantages of no taxation, no reporting and no disclosure requirements, easy access to your money at any time through local banking, unimpeded transfer of your property to your heirs.

Such an asset protection strategy works great because assets become inaccessible to unfriendly acquisition, or they are very difficult to infringe (and, therefore, they are potentially less attractive) in case of legal proceedings (local laws are applied to companies registered by foreigners in free zones) clients, partners, controversial family members or other persons.

Now let's consider what kind of solution for asset protection is better – an offshore or an onshore company. The table below shows the benefits of these two types of legal entities in the free zones:

Table 1 - Offshore vs. onshore

Why onshore company? Why offshore company?
  • An onshore company is a resident of the country
  • An onshore company can conduct business in the free zone
  • No restrictions for opening a bank account, obtaining a loan and other banking services.
  • An onshore company causes less suspicion among potential partners and customers than offshore
  • Lower business operating costs
  • Simplified registration procedure, reduced audit requirements.
  • No license required

How to protect your assets? There is no universal answer to this question since everything depends on the specific circumstances and conditions, but in any case, the UAE offers several proven ways to protect foreign property and business by registering a legal entity, or a trust in the country.

If you have any questions regarding the protection of your assets in the UAE, please contact our business consultants, they will help you to choose the best solution.