Asset protection in Dubai (UAE)

Until now, the Emirate of Dubai in the United Arab Emirates (UAE) has been known above all for its favourable taxation regime in international comparison. However, investors would do well to consider other aspects of asset protection in Dubai in addition to its quality as a tax centre. What opportunities does Dubai offer for asset protection?

Succession planning and asset protection via the DIFC Foundation

Since the introduction of the DIFC Foundation, the Emirate of Dubai has provided a classic instrument for asset protection and succession planning, at least in the free zone of the Dubai International Financial Centre (DIFC). The foundation in the DIFC Free Zone follows the model of the foundation as a corporate body that only “belongs to itself”, which is widespread in Europe (e.g. Liechtenstein, Germany, Austria). As the DIFC foundation has neither shareholders nor owners, it is suitable for protecting the assets of entrepreneurs who are exposed to liability. The law of the DIFC also allows it to be organised as a discretionary foundation, so that in the absence of fixed subscription rights, the beneficiaries are also protected against enforcement.

Finally, DIFC foundation law offers a certain degree of protection against challenges to transfers of assets to the DIFC foundation under foreign law. In principle, transfers to the DIFC foundations, provided they are valid under DIFC law, are not contestable under foreign law. Corresponding foreign judgements are not recognised in the DIFC. Exceptions apply if the founder was already insolvent at the time of the contribution or if it can be proven that he intended to defraud creditors.

Prevent fragmentation in the event of inheritance by excluding the compulsory portion

Under Dubai inheritance law, relatives can be disinherited completely and without a compulsory portion. Entrepreneurs and wealthy private individuals can thus ensure that their assets are not fragmented in the event of inheritance. For testators with business assets in particular, it can be crucial to exclude claims to a compulsory portion that are aimed at money and therefore, in the worst case, lead to the liquidation of the business. If a waiver of a compulsory portion or ineligibility for a compulsory portion is not an option, the Dubai inheritance law can provide a remedy. Care must also be taken to avoid the jurisdiction of German courts.

Protection against claims from marital gain equalisation

If Dubai law applies, claims for equalisation of accrued gains in the event of divorce are generally excluded. Unlike in Germany, for example, the principle of separate property regime applies in Dubai. The spouses’ assets remain separate before, during and after the marriage. Dubai law and thus the exclusion of gain claims can apply, for example, if the spouses have always had their habitual residence in Dubai.

Impending EURO crash: cushioning currency risks in Dubai

Anyone who holds a significant portion of their cash assets or deposits in euros runs the risk of their assets being affected by a devaluation of the euro. At least for internationally active entrepreneurs and private individuals, such a euro crash scenario, which is no longer too remote, could have a noticeable impact on purchasing power on the global market. In times of rising national debt in the eurozone, such currency risks can be mitigated by investing in Dubai with the dirham payable there. Deposits in dirhams are required anyway for the foundation of many Dubai companies and the opening of bank accounts.

Asset protection through tax optimisation

The location of Dubai and its tax conditions are suitable for international tax optimisation structures. Asset risks due to exit taxation, add-back taxation or withholding tax can be minimised through cross-border structures. For example, an operational Dubai Free Zone Company with a Liechtenstein foundation or establishment as a holding company can be an ideal solution. Both jurisdictions offer their own advantages. In Dubai, certain companies in the free zones (so-called Qualified Free Zone Persons) can be completely exempt from corporation tax. With its private wealth structure (PVS), Liechtenstein offers a framework for greatly reduced taxation of corporations there. Thanks to the double taxation agreement between the United Arab Emirates and Liechtenstein, such structures have also gained legal and therefore economic planning security.

Asset protection in Dubai

These insights alone show that Dubai offers interesting structuring options as a location for asset protection. There are also options for enforcement protection. In particular, if locations such as Liechtenstein, previously known for their strong asset protection, have to tighten their regulations under international pressure from EU and EEA states, a commitment in Dubai could become an alternative thanks to its competitive tax regime, its instruments for asset protection and its political independence from the EU.