Family Business Takes Centre Stage
The following article was written by Esquire Group’s Jimmy Sexton and Outer Temple’s David Russell and included on the DIFC Review with their kind permission. It was originally published on bloombergtax.com
Dubai has worked hard to position itself an attractive jurisdiction for businesses, including family businesses. It had no personal or corporate income taxes until recently, when it introduced one of the world’s lowest corporate income tax rates of 9% to comply with the OECD’s Global Tax Deal.
Jimmy Sexton and David Russell
Published: 05/06/2023
5 min read
The new rate takes effect on June 1, 2023, but it generally only applies to trading income and not passive income. Perhaps more importantly, it doesn’t apply to companies incorporated in one of the UAE’s many free zones, where most international businesses (including family businesses) are incorporated, if their income is below BEPS Pillar Two levels.
Dubai has made it easy and relatively inexpensive to set up business in the emirate. It has created many straightforward avenues to obtain residency that make it easy to relocate family and employees. It is centrally located globally, with daily flight connections to almost anywhere. And it’s safe, has world-class health care and education, and offers endless dining and entertainment options.
While implementing modern trust and foundation laws was a good start to ensuring the sustainability of family businesses, the Dubai International Financial Centre has taken it a step further, having launched the Family Wealth Centre in March to help families and ultra-high net worth individuals overcome challenges such as digitization, cultural issues, governance, and succession planning. The Family Wealth Centre aims to help family businesses ensure they are sustainable and survive for generations to come.
To accomplish this, the DIFC Family Wealth Centre takes a three-pronged approach, offering family business certification, adviser accreditation, and education.
Family businesses can apply for certification for a fee. To receive a certification of AA, they must prove that they have proper governance. To receive a certification of AAA, they must demonstrate that they also have robust succession planning. Furthermore, leading family businesses that can show that they also have environmental, social, and governance certification or are Shariah compliant can receive a AAA* certification.
The DIFC Family Wealth Centre will maintain an accredited adviser registry with experienced advisers to help family businesses obtain certification and help them achieve their goals. To become an accredited adviser, advisers must file an application and demonstrate their experience and expertise.
Additionally, the center will offer regular educational events on topics relevant to family businesses. Family businesses will also have access to DIFC’s common law courts, as well as private arbitration and mediation, and service providers in this regard may also seek accreditation with the DIFC Family Wealth Centre.
It is also worth noting that the center is open to all family businesses worldwide, even if not located in DIFC.
Tarek Hajjiri, the center’s CEO, stated that the combination of a pro-business environment, friendly tax laws, and commitment to the sustainability of family businesses makes the UAE, and especially DIFC, an attractive jurisdiction for family businesses and UHNWI looking to relocate and re-domicile their wealth.
Attracting family businesses is one thing, but ensuring their sustained growth is another. Family businesses rarely make it past the third generation because of ownership dissolution over time and the challenges posed by proper decision-making among many interest holders. These issues are largely due to a lack of proper legacy and succession planning and failing to educate and involve the next generation in the family business.
The DIFC Family Wealth Centre is a truly innovative concept. It is encouraging to see a jurisdiction try to solve this problem at a governmental level.