One of the drivers of Dubai’s rapid ascent over the past decade as a global wealth hub has been the introduction of innovative new legal and regulatory frameworks. Initiatives such as DIFC’s Single Family Office Regulations and Trust Law combined with its broader English-language common-law judicial system have played vital roles in Dubai’s emergence as a safe haven and magnet for wealth and investment. Now, a new set of rules relating to succession and inheritance for non-Muslims adds another vital strand to Dubai’s wealth-friendly legislative regime.
There is fierce competition among financial hubs to be the centre of choice for the world’s wealthy. Three factors separate the leaders from the laggards — the regulatory and legislative environment; lifestyle and hard infrastructure; and the pool of wealth management services. Wealth is likely to gravitate to places, which not only offer the best conditions for its growth and preservation, but also provide the most attractive lifestyles for high net worth individuals and their families.
Dubai’s tax free regime and exceptional urban and leisure infrastructures are key elements that have given it an edge over many of its global rivals. However, until now, there was one element within the enabling infrastructure that it scored low on — legal certainty for inheritance. The introduction of the DIFC Wills and Probate Registry and its new comprehensive rules for testamentary succession for non-Muslim expatriates adds that all-important strand.
Dubai is home to an incredible diversity of wealthy expatriates. From the non-resident Indians who have built business empires that rank among the region’s largest, to the European expatriates who have accumulated significant surplus wealth and the large number of Chinese entrepreneurs who run extremely profitable businesses, there is a vast number of wealthy individuals whose combined assets run into several billions of dollars. However, a lot of this wealth generated in Dubai is transferred to offshore centres like Jersey and Isle of Man primarily due to concerns about inheritance.
Uncertainty
Under its Sharia-based legislative framework, inheritance in the UAE is subject to a forced heirship regime, which means that the distribution of the deceased person’s assets is fixed to certain members of the wider family. Families often have to navigate complex and opaque procedures to transfer their loved ones’ assets after death. Adding to this uncertainty is the risk of lengthy and costly probate battles. These uncertainties make many high-net-worth individuals uncomfortable about retaining their wealth in Dubai. This is a major impediment to the continued development of Dubai as a wealth hub.
The DIFC Wills and Probate Registry, the first service of its kind in the Middle East, is a simple opt-in mechanism that gives non-Muslim expatriates the legal certainty that their Dubai-based assets will be transferred to their loved ones upon death according to their own wishes. The rules governing the Registry give non-Muslim expatriates in Dubai the ability to choose an English-language system that provides familiarity, trust, transparency and security for inheritance.
The new initiative comes at a time when capital from different parts of the world is converging on Dubai. Apart from South Asia and Europe, we are seeing increased capital inflows from other regions like Russia, South East Asia, Australia and South Africa. At the same time, the activation of new trading links in a changing global economy and the revival of ancient ones like the Silk Route between China and the Middle East have made Dubai an even more important hub for international capital flows. As capital flows into Dubai, business owners will seek mechanisms to make sure they can transfer their assets based here to their preferred inheritors at the time of death. The Wills and Probate Registry provides a comprehensive mechanism for this purpose and takes the uncertainty surrounding inheritance completely out of the equation.
Local property market
The new Registry also promises to enhance the mobility and freedom of capital in Dubai. This will be particularly visible in the local property market, especially its secondary market, which I believe will receive a stimulus from the new initiative. Investors in property will now have the confidence that legal certainty over inheritance will make their property assets more attractive to prospective buyers. The increased capital mobility and freedom that will result from this will make the overall market more attractive to investors, reinforcing a virtuous cycle. All of this will further enhance Dubai’s value proposition as a wealth hub.
The positive knock-on effect that the new inheritance rules will have on Dubai’s financial ecosystem could open up new growth opportunities for Dubai. Firstly, as confidence in Dubai increases, more and more businessmen and high net worth individuals may look at basing a larger chunk of their global wealth in Dubai. Secondly, in the aftermath of the global financial crisis, the dominance of established financial centres is being challenged. With their profitability under severe strain due to rising regulatory costs, large international corporations such as HSBC are looking at moving their headquarters from their long-established bases in the west to Asian hubs. With Dubai becoming one of the most capital and business friendly places in the globe as well as one of the most promising wealth management markets in the world, one could well see prominent multinational corporations choosing Dubai as the base for their global business.
The writer sits on a Special Interest Group of the Society of Trust & Estate Practitioners (STEP) in London.
