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Managing Your Private Wealth: Setting up a Single Family Office in the DIFC

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Published October 2015

Background

In 2008, the Dubai International Financial Centre (“DIFC”) established a comprehensive regulatory framework to recognise and provide infrastructure to wealthy families or family-owned businesses operating in the region. The regulations permit the establishment of Single Family Offices (each a “SFO”) within the DIFC, with the objective of achieving efficient management of family-run institutions, their private wealth, as well as their succession and tax planning.

In addition, setting up a SFO in the DIFC allows the Single Family to benefit from: (i) the zero percent tax rate on income and profits; (ii) a legal system based on English common law principles; and (iii) a jurisdiction with a sophisticated alternative dispute resolution system.

Structure and Activities of a SFO

A SFO in the DIFC can take several legal forms, including as a company limited by shares or, as a limited liability partnership.
The SFO is restricted to providing services only to:

(a) one or more family members of a Single Family;
(b) a family fiduciary structure;
(c) a family entity; or
(d) a family business,

in each case either on a cost or profit basis.

According to DIFC SFO Regulations, a SFO can only be established if the Single Family:

- can demonstrate minimum investable / liquid assets of USD 10 million; and
- is comprised of either one individual or a group of individuals, all of whom are the bloodline descendants of a common ancestor or their spouses. (Note that members must be within three direct generations of the family in question).

A ‘family fiduciary structure’ is usually a trust arrangement of which a family member of the Single Family, or a family entity related to the Single Family, is the settlor or founder of the trust, and beneficiaries of which are all family members, charities, family entities or other family fiduciary structures related to the Single Family.

A ‘family entity’ or ‘family business’ is an entity or business that is controlled by the Single Family.

Operation

Each SFO must be operated by an authorised representative chosen by the Single Family. The authorised representative must be registered with the DIFC and should be ordinarily resident in the United Arab Emirates.

The authorised representative is typically responsible for activities such as (but not limited to):

- acting as the point of contact between the SFO and the DIFC;
- liaising with the senior management of the SFO;
- filing an annual return on behalf of the SFO;
- responding promptly to any request for information made by UAE authorities or the DIFC Registrar; and
- implementing relevant due diligence measures.

Establishing a SFO

In order to establish a SFO in the DIFC, it is essential that the Single Family first consults the business development team at the DIFC along with legal and financial advisors to commence the setting up process.

Establishing a SFO requires an application form to be completed and filed with the DIFC, along with supporting information, which includes a detailed activity plan, financial information, and composition of the management team and key advisors.

In addition to the above, the Dubai Financial Service Authority (DFSA), (with which the DIFC consulted regarding the creation of the SFO), also requires that the SFO must register with it and implement adequate compliance and AML systems and procedures.

The DIFC exercises oversight on all entities operating within its jurisdiction. Thus, on application for establishing an SFO, the DIFC will consider whether allowing the establishment of a specific SFO would harm the integrity or reputation of the DIFC as a whole. After taking various factors into account, including the degree to which individuals comprising the Single Family are politically exposed, the DIFC shall decide whether a proposed SFO should be allowed to set up in the DIFC.

If you are interested in establishing a SFO, or if you are interested in discussing the content of this article in more detail, please contact: Sunita Singh-Dalal, Partner (ssingh-dalal@ach-legal.com or +9714-4529091). You may also visit: www.ach-legal.com.

 

Author:
Sunita Singh-Dalal
Partner
AC&H
Tel: +9714-4529091
Email: ssingh-dalal@achlegal.com