In recent years, the UAE has emerged as a premier destination for high-net-worth individuals (HNWIs) and families looking to set up family offices. For families with significant assets and business interests, a family office in the UAE can help safeguard wealth, manage investments, and ensure smooth generational transitions.

In this blog, we’ll provide a detailed guide on how to set up a family office in the UAE.

What Is a Family Office?

A family office is a private advisory firm that manages wealth and financial affairs for high-net-worth families. It often handles a range of functions, including investment management, estate planning, tax strategy, philanthropic activities, legal affairs, and succession planning. Family offices are tailored to meet the specific needs of a family, offering a centralized structure for managing complex financial and legal matters.

Family offices can be classified into two main categories:

1. Single Family Office (SFO): This type of family office serves the needs of one family, typically managing all their assets and financial affairs.

2. Multi-Family Office (MFO): This office serves multiple families, often providing more standardized services while still focusing on the unique needs of each client.

Why Set Up a Family Office in the UAE?

The UAE, particularly Dubai and Abu Dhabi, offers a range of advantages that make it a highly attractive jurisdiction for family offices:

• Tax Efficiency: The UAE has no personal income tax, inheritance tax, or capital gains tax. This tax-free environment is one of the primary reasons why HNWIs choose the UAE to establish their family office.

• Political and Economic Stability: The UAE’s stable political environment, modern infrastructure, and investor-friendly policies ensure a secure location for wealth preservation and financial management.

• Strategic Location: The UAE is centrally located between Europe, Asia, and Africa, making it a convenient hub for global business and investment operations.

• Wealth Management Expertise: The UAE has a thriving financial services sector with experienced professionals specializing in asset management, estate planning, and international tax law.

• Flexible Residency Options: The UAE offers residency visas for investors and their families, which makes it easier for families to relocate to or frequently visit the UAE.

Legal Guidelines for Setting Up a Family Office in the UAE

Setting up a family office in the UAE requires navigating a range of legal considerations. Below are the key steps to ensure a smooth legal setup:

1. Choose the Right Legal Structure

One of the first steps in setting up a family office is to choose the appropriate legal structure. In the UAE, family offices can be set up under various legal entities, depending on their specific needs:

• Limited Liability Company (LLC): Ideal for families who want to operate within the UAE Mainland and require access to the local market. An LLC requires a local sponsor to hold 51% of the ownership, though free zones provide 100% ownership options.

• Free Zone Entities: Setting up a family office within a free zone allows for 100% foreign ownership and offers various advantages, including tax exemptions and ease of repatriation of capital and profits. 

• Special Purpose Vehicles (SPVs): SPVs are often used for holding and managing assets such as real estate, investments, and intellectual property. SPVs allow families to protect their assets while maintaining full control over them.

2. Select the Right Free Zone

For families seeking greater autonomy and tax benefits, free zones are often the preferred choice. The UAE offers several free zones that cater to family offices. Free zones offer various licenses that allow families to conduct a wide range of financial activities.

3. Understand the Regulatory Framework

Operating a family office within the UAE requires compliance with various regulatory requirements:

• Licensing: Family offices must obtain a license to operate, which typically includes financial advisory services, investment management, and wealth preservation activities. The licensing requirements vary depending on the jurisdiction and free zone.

• Compliance with Local Laws: Family offices must adhere to local regulations, including anti-money laundering (AML) and combating the financing of terrorism (CFT) laws. This includes implementing rigorous compliance measures, including client due diligence, record-keeping, and reporting suspicious transactions.

• Governance Structure: Family offices should establish a clear governance structure that outlines the roles and responsibilities of family members and professionals involved in the management of assets. This can include forming a family council or board of advisors to oversee strategic decisions.

4. Draft Key Legal Documents

Setting up a family office involves the drafting of several key legal documents to ensure smooth operations and succession planning:

• Family Constitution: A family constitution outlines the principles and values that guide the family office, including decision-making processes, succession planning, and conflict resolution. This document serves as a roadmap for the family’s long-term goals and vision.

• Service Agreements: Family offices often engage external advisors for services such as legal advice, investment management, and tax planning. Clear service agreements should be drafted to define the scope of these services, fees, and responsibilities.

• Power of Attorney: Families should consider appointing trusted individuals with power of attorney to act on their behalf for certain financial and legal matters, ensuring that key decisions can be made promptly if needed.

Financial Guidelines for Setting Up a Family Office

In addition to legal considerations, family offices must follow financial guidelines to ensure efficient asset management and wealth preservation:

1. Define Your Financial Objectives

Every family office is unique, and its financial strategy should align with the family’s long-term objectives. This includes:

• Wealth Preservation: Strategies for safeguarding assets against market volatility and economic downturns.

• Investment Strategy: A tailored approach to managing the family’s investment portfolio, which may include a mix of equities, real estate, private equity, and alternative investments.

• Tax Efficiency: While the UAE offers tax advantages, families with international assets must consider global tax planning and compliance with relevant jurisdictions.

2. Asset Management and Allocation

Family offices need a robust asset management strategy that reflects the family’s risk tolerance, investment goals, and liquidity needs. This includes:

• Diversification: Spread investments across different asset classes and markets to reduce risk.

• Real Estate Investments: Real estate is a popular investment choice for family offices, both locally and globally. Family offices should establish a strategy for acquiring, managing, and disposing of real estate assets.

• Private Equity: Investing in private companies, either directly or through venture capital funds, can provide substantial returns for family offices willing to take on higher risk.

3. Estate and Succession Planning

One of the key roles of a family office is to ensure smooth generational transitions through proper estate planning:

• Wills and Trusts: Drafting wills and establishing trusts can protect the family’s wealth and ensure that assets are distributed according to their wishes.

• Succession Planning: Identify and prepare the next generation to take over the family office, ensuring continuity of leadership and financial management.

To conclude, setting up a family office in the UAE offers high-net-worth families a sophisticated and tax-efficient way to manage their wealth, investments, and business interests. 

For professional assistance in setting up your business or any legal services in the UAE, please contact us at Firm Advice. Our experts provide comprehensive corporate and legal services to ensure a smooth and compliant process.