American billionaire investor and hedge fund manager Ray Dalio, Indian business conglomerates Gautam Adani and Mukesh Ambani are some of the prominent names looking to expand their operational footprints in the UAE by setting up business headquarters in the Gulf country.
Ultra-high-net-worth individuals are now giving a new fillip to the Emirate’s real estate dreams. More and more family offices are now being set up in the UAE, and the market size is expected to reach the Dh3.67 trillion mark by 2028. As per reports, these family offices are becoming the new wealth parking mechanism for the ultra-rich. As per stats, an estimated 17,000 family offices worldwide have combined assets of $10 trillion and around 25% of these assets have been placed in the real estate sector.
All eyes on Dubai
Hedge funds, crypto companies and venture capital firms are now increasing their presence in the UAE, due to new reforms and legislations, seen as conducive for family offices and wealth management firms.
As per reports, in 2021 alone, UAE’s financial wealth grew by 20%, a ratio which was double that of its global counterpart of 11%. This tally is more than enough to cement the Emirati’s status as a haven for family wealth.
In the same year, ultra-high-net-worth individuals and family offices poured some 41% wealth into the UAE GDP. By 2026, the share will likely increase to 46% by 2026.
Analysts project that the Gulf country’s financial wealth will continue to expand at a compounded annual growth rate of 6.7% and reach $1 trillion by 2026, up from $700 billion (Dh2.57 trillion) in 2021.
Family businesses in the UAE play a key role in the emirate’s economy, as they contribute to nearly 60% of the country’s GDP growth, apart from employing 80% of the country’s domestic workforce in their operations.
Recently, Edmond de Rothschild, EnTrust Global, Nomura Singapore Limited and The Family Office Company set up their premises in the Dubai International Financial Centre (DIFC).
The Centre (DIFC) has attracted several notable names recently, currently hosting over 300 wealth and asset management companies. These ventures represent an industry size of $450 billion (Dh1.65 trillion). More than 150 funds were domiciled in the DFIC by 2022 end.
With $517 billion of wealth in Dubai, the Emirati city has emerged as the Middle East’s golden bird, as DFIC continues to attract global and regional asset management firms to set up an office.
“With the enactment of the new regulations, Dubai will likely witness a significant transfer of wealth from other popular hubs like the US, Luxembourg, Singapore, and Hong Kong. Owing to Dubai’s geo-strategic location and investor-friendly laws, Asian family offices could especially look to establish and expand their base from here,” said Vijay Valecha, Chief Investment Officer, Century Financial, while interacting with the Khaleej Times.
Around 30% of the Asian family offices have more than $1 billion in assets under management, something which will have a positive impact on DFIC’s growth in the coming days.
As per Valecha, the UAE has chartered a growth strategy to see itself as a global investment destination and evidently, its business-friendly policies tend to attract talent, paving the way for global family offices to set up their operations in the country.
“In the past decade, the UAE has undertaken a series of legislative reforms to promote the smooth transfer of wealth and ownership of family-owned assets and businesses. This includes the issuance of trust and foundation legislation, and was followed by the enacting of a wills system for non-Muslims, in both DIFC and Abu Dhabi Global Markets,” he remarked further.
Tracking the government initiatives
To help double family-owned businesses’ contribution to the nation’s GDP to $320 billion in 2032, UAE introduced legal reforms in January 2023. Experts see the move in line with the country’s economic diversification goals by attracting investment in key sectors, investments which will strengthen UAE’s corporate sector further, so that the latter can contribute to the GDP more in coming years.
The new law enables family businesses to overcome challenges when planning succession under the existing regulatory framework of the UAE Companies Law.
The law applies to all family-owned companies that exist in the UAE, and the venture owners who own the majority of the shares in these businesses as family companies in accordance with the existing UAE legal provisions.
“This law would assist family businesses in diversifying their operations, establishing pioneering ventures in modern economic areas, and strengthening their partnerships and opportunities both inside and outside the country. The program seeks to turn 200 family business projects into big corporations with a market value of more than Dh150 billion ($40.84 billion) and yearly revenue of Dh18 billion by 2030 which would go a long way in transforming UAE’s growth story,” Valecha said.
The law under discussion here, Federal Decree Law No. 37 of 2022 on family businesses, had been introduced by the UAE government in November 2022 to enhance and raise the family business environment in the country to globally competitive levels.
Essam Al Tamimi, founder and Chairman of Al Tamimi & Company in 2022 said that the law would define a family company as a venture incorporated under the Companies Law whose majority of shares have been owned by persons belonging to the same family and were registered in a special register of family companies at the Emirate’s Ministry of Economy.
“Under the law, a company loses its family company status if the partners from among family members cease to be majority shareholders, and with that, the company loses its benefits under the law,” he explained further.
“The law applies to all existing family companies or thereafter incorporated in the UAE, with the exception of public joint stock companies and general partnerships. In this regard the law does not create a new form for the family company as family companies will still take the same forms already in place in the UAE under the Commercial Companies Law or in the free zones as per their own legislations,” the expert commented further.
“Where a special provision exists, such provision shall apply and not the provisions of the Companies Law. As long as a company comes under the definition of a family company, then it enjoys the unique benefits, incentives, and exclusions available under the Law or such decisions as the Cabinet or the competent authority may issue in the implementation of its provisions,” Al Tamimi concluded.
Flexibility in selecting partners & resolving disputes
The latest legal reform now gives family companies the right to adopt a charter that will regulate their business governance, apart from providing freedom to these business charters to include conditions, standards, and qualifications to be met for family members to be considered for employment with the concerned companies.
The law also provides for other mechanisms to regulate family governance and the former’s relationship in relation to the company through entities such as family assemblies, family councils and family offices.
The reform is also different from the Commercial Companies Law, as it doesn’t set a maximum limit on the number of partners a family company can have and gives these ventures the right to agree, in the memorandum of association and charter, on equal/different rights for the partners with respect to dividends, management, and other rights and benefits. The law also permits these ventures to operate different classes of shares, dividends and voting rights, as per the partners’ wishes. However, the new law also gives strict controls and procedures on the disposal of shares to non-family members, whereas the business partners will get a pre-emption right in addition to a right of redemption.
Also, the family company can purchase its own shares, a right which was previously restricted to joint stock companies only. The legal reform has now ensured that these families will now have additional means to protect their companies and preserve ownership continuity, while exercising the flexibility to exit the ventures at their convenience.
Talking about the dispute-resolving mechanism, the reform has set out various flexible options for the family members and partners, including a conciliation process to be agreed upon in the memorandum of association/charter, through a board constituting individuals, partners or third parties. If these options fail, the matter then will be decided by the dispute resolution committee, which will be established by a decision of the Minister of Justice or the head of the local judicial authority.
Understanding UAE’s family business ecosystem
Family businesses have a long and strong presence in the Gulf region, contributing positively to the economies in this part of the world, especially when it comes to the non-oil sectors. Dubai has been home to these ventures, and their operational holdings cover multiple sectors from retail and leisure to financial services.
As per reports, family-owned businesses contribute 60% of the country’s GDP and 80% of the nation’s workforce. A tally by Forbes Middle East suggests that the Gulf Cooperation Council (GCC) has emerged as the safe haven for family businesses. The Forbes list has been topped by Saudi Arabia (36), followed by the UAE (21), Kuwait (10), Oman (6), Bahrain (5), Qatar (5), Jordan (4), Morocco (4), Algeria (3), Egypt (3) and Lebanon (3).
Decoding the figure further suggests that around 87% of the region’s family businesses are diversified while the rest have specialised their operations into sectors like real estate, jewellery, FMCG (fast-moving consumer goods), industrial, food and beverages and retail. The top 10 business families in the GCC region have employed some 600,000 people with a net worth of more than $31 billion (Dh114 billion).
Talking about the UAE, Forbes’ list called ‘Top 100 Arab Family Businesses In The Middle East 2020’ has mentioned family businesses like Al Futtaim Group and Majid Al Futtaim, Al Ghurair and Al Ghurair Group, SS Lootah Group, Juma Al Majid Holding Group, AW Rostamani Group and Easa Al Gurg Group, Al Habtoor Group, Al Naboodah Holding, Khalifa Juma Al Naboodah Group, Ali & Sons Holding, Albwardy Investment, Ghassan Aboud Group, Abu Ghazaleh Investments, Al Nowais Investments, Al Shirawi Group’s holding company – Oasis Investment Company, Al Fahim Group, Chalhoub Group, Al Tayer Group and Gulf Marketing Group.
UAE’s tryst with family businesses started in 1838, when the family of JP Morgan founded the House of Morgan, which managed the family’s assets. Rockefeller family followed suit after four decades by establishing its family office in the Gulf country. A recent study from international trust and corporate management company Intertrust Group has found that family offices are the fastest-growing structuring vehicle in the Middle East.
Industrial zones like Abu Dhabi Global Market (ADGM), Dubai International Financial Centre (DIFC) and Dubai Multi Commodities Centre (DMCC) have their own piece of regulations on setting up family offices in those free zones. Legal terms like the definition of family members, minimum paid-up capital requirements, and compliance and reporting requirements, vary in these three free zones. These zones also do not tax any corporate income/capital gains of these family offices.
Also, a family office is allowed to provide asset and wealth management services, day-to-day accounting and management of legal affairs, and administrative services to the various ventures working under its umbrella.
Good days ahead for UAE
As per Betterhomes’ latest figures, British, Indian and Russian nationals have emerged as the top investors in Dubai’s real estate market in the first quarter of 2023, followed by investors from Italy, Lebanon, Egypt, Turkey, France, China and the UAE.
The factors contributing to this phenomenon are the escalating costs in Europe after the Ukraine war, Dubai’s efficient handling of the COVID outbreaks, a stable economy, 100% foreign ownership, and the availability of 10-year Golden Visas.
The Dubai-based Samana Developers too confirmed the development, by stating that Europeans were top investors in its latest real estate project. Najmeh Jafari, general manager of Samana Developers, told that the Europeans who invest in Dubai properties are from France, Germany, the UK, the Netherlands, Sweden, Switzerland, Austria, Belgium, and Norway.
Ayman Youssef, vice-president, Coldwell Banker UAE, also said that property buyers in the Emirati city are primarily coming from Germany, France and Switzerland.
“The UAE property market has managed to maintain attractive prices with higher yield/return per unit as compared to most countries in Europe. Today one can get up to 8% returns which is quite high compared to what any European country can offer. Also, the Golden Visa, 100% ownership right, better business opportunities and other factors are encouraging people to invest more in the emirate,” the official stated.
“Dubai’s real estate sector continues to see strong international demand from across the globe, as people seek a safe haven, tax efficiency and positive investment returns. Buyers from the UK accounted for the most real estate transactions at Betterhomes in the first quarter, with growth of 60 per cent year-on-year. This was closely followed by buyers from India,” Coldwell said in its first quarterly report.
The Dubai International Financial Centre (DIFC) in February 2023 announced the enactment of its new Family Arrangements Regulations, which would provide a firm foundation for the new DIFC ‘Family Wealth Centre’, in terms of offering an operational framework and hub for family-owned businesses. The regulation, named the ‘Family Arrangements Regulations’, will provide comprehensive guidelines for family businesses holding assets, especially when it comes to these ventures’ succession procedures and planning for how the future generations will take the businesses ahead.
The new set of rules will replace the legacy ‘Single-Family Office Regulations’ and ‘DIFC Single Family Office’ regimes with a new one that will eliminate the requirement for a family office to register itself as a designated non-financial business or profession (DNFBP) with the Dubai Financial Services Authority (DFSA), the independent regulator of financial services conducted in or from DIFC. Multi-family offices will, however, require authorisation and licensing by the DFSA.
Family businesses have been a part and parcel of the UAE economy. These ventures are now pumping the growth story of the country’s non-oil sector. The government too has understood the importance of having the offices of these companies within its territory and they have responded to it by reforming its family business rules. With Dubai being the new investment destination for ultra-high-net-worth individuals from around the globe, one can safely bait for good days ahead for the UAE.