As Dubai continues to establish itself as a global hub for wealth management, more high-net-worth individuals (HNWIs) and families are turning to family offices to manage their assets, investments, and legacy planning. Setting up a family office in Dubai offers significant advantages, such as tax benefits, regulatory advantages, and a favorable jurisdiction for wealth management. However, before proceeding with the Dubai family office setup, it is crucial to understand the legal considerations involved in establishing such an entity.

A family office can be either a single-family office (SFO), serving the needs of one family, or a multi-family office (MFO), providing services to multiple families. This blog explores the top six legal considerations you must account for when establishing a family office in Dubai, ensuring compliance with both local regulations and international standards.

1. Jurisdiction for Family Office: Choosing Dubai

Why Dubai?

When considering the legal framework for a family office in Dubai, one of the first decisions you’ll need to make is the jurisdiction. Dubai offers a robust and favorable environment for setting up a family office due to its strategic location, business-friendly regulations, and tax incentives.

Dubai has positioned itself as a premier destination for wealth management with its stable financial system, modern infrastructure, and regulatory transparency. This makes it one of the most attractive jurisdictions for setting up both single family offices and multi family offices.

Advantages of Dubai’s Jurisdiction

• Tax Benefits: Dubai’s tax-friendly environment includes no personal income tax, no capital gains tax, and a low VAT rate (5%). This is particularly advantageous for families looking to preserve and grow their wealth without the tax burdens typically faced in other jurisdictions.
  
• Asset Protection: Dubai offers asset protection laws that help shield wealth from external claims or creditors. This is a critical consideration for families looking to safeguard their assets for future generations.
  
• Favourable Regulatory Framework: Dubai has clear regulations governing family offices, providing an easy path for family office licensing in Dubai. The Dubai International Financial Centre (DIFC) offers a transparent legal framework, which includes modern laws related to trusts, foundations, and wealth management.
  
• Financial Privacy: Dubai provides a high level of financial privacy, ensuring that the details of family wealth management remain confidential.
  

2. Family Office Licensing in Dubai

A critical step in establishing a family office in Dubai is obtaining the proper licensing. There are different types of licenses available, depending on the services the family office will provide.

Types of Family Office Licenses

1. Financial Services License: This is required if the family office will be engaging in financial services like investment management, asset management, or wealth planning for third parties (in case of an MFO).
   
2. Corporate Services License: If the family office is intended to manage only the family’s assets without offering services to others, this type of license may suffice.
   
3. Private Trust Company License: For family offices that wish to establish trusts for wealth protection and estate planning, a Private Trust Company License is necessary.
   

Regulatory Bodies for Family Office Licensing

• Dubai Financial Services Authority (DFSA) regulates financial services within the Dubai International Financial Centre (DIFC), ensuring that family offices comply with international standards.
  
• Dubai Department of Economic Development (DED): For businesses outside the DIFC, the DED governs licensing and registration.
  

Legal Requirements for Licensing

• The family office must have a registered office address in Dubai.
  
• Appointment of a local director or manager (in certain cases).
  
• Compliance with family office regulations of Dubai, including financial reporting, audit requirements, and KYC (Know Your Customer) standards.
  

3. Family Office Legal Framework and Governance

Establishing a family office in Dubai requires a strong legal framework to ensure smooth operations and maintain governance. It is essential to design a governance structure that aligns with the family’s values and business objectives.

Key Elements of Family Office Governance

1. Family Constitution: A family office governance in Dubai typically starts with a family constitution, which outlines the family’s values, mission, decision-making processes, and governance structure.
   
2. Board of Directors: A family office board should consist of family members and external advisors who provide strategic guidance. The board’s responsibilities include overseeing the family office’s financial and operational activities.
   
3. Advisory Committees: Many offices set up advisory committees for specific areas such as investments, legal, and philanthropy. This ensures expert guidance while maintaining control over major decisions.
   
4. Succession Planning: The family office must have a clear plan for transitioning control and wealth to the next generation. This includes legal considerations around inheritance, trusts, and wills.

4. Family Office Compliance with Regulations

Compliance is a crucial aspect of operating a family office in Dubai. As a highly regulated environment, Dubai requires family offices to adhere to stringent laws concerning anti-money laundering (AML), corporate governance, and financial reporting.

Key Compliance Areas for Family Offices

1. AML and KYC Compliance: Family office compliance in Dubai involves adhering to international standards for anti-money laundering (AML) and knowing your customer (KYC) procedures. Family offices must ensure that they are not involved in illicit activities and maintain records for regulatory authorities.
   
2. FATCA Compliance: If the family office is managing U.S. assets, compliance with the Foreign Account Tax Compliance Act (FATCA) is required. This means providing information about U.S. assets to tax authorities.
   
3. Data Protection Regulations: Family offices must adhere to data protection laws such as the General Data Protection Regulation (GDPR) if they handle sensitive personal data. Dubai also has its own data protection laws to ensure privacy and security for clients.
   
4. Regulatory Filings: Family offices are required to file regular reports to ensure compliance with local laws. These reports may include financial statements, tax filings, and governance-related documents.
   

5. Family Office Tax Benefits in Dubai

One of the major draws of establishing a family office in Dubai is the significant family office tax benefits that Dubai provides. Dubai’s tax regime is one of the most attractive in the world for family offices looking to maximise wealth preservation.

No Income Tax or Capital Gains Tax

• Dubai offers zero percent income tax on individuals and corporations. This is highly beneficial for family offices looking to retain more of their wealth.
  
• There is also no capital gains tax, meaning that profits generated from investments, real estate, or other assets are not taxed.

Low VAT Rate

Dubai has a 5% VAT rate, one of the lowest in the world. This applies to most goods and services, making the cost of doing business in Dubai relatively low compared to other jurisdictions with higher VAT rates.

Wealth and Inheritance Tax Advantages

Dubai does not impose inheritance or wealth taxes, which is particularly advantageous for families planning to transfer wealth to future generations. Family office tax benefits in Dubai ensure that wealth can be preserved, grown, and passed on with minimal tax liabilities. 

6. Family Office Infrastructure and Services in Dubai

Setting up a family office in Dubai also involves building the right infrastructure to support wealth management, governance, and investment strategies. The family office infrastructure must be robust and able to accommodate various activities, including investments, legal services, and family administration.

Key Family Office Services Dubai

1. Wealth Management and Investment Advisory: Most family offices provide tailored investment strategies based on the family’s goals, risk tolerance, and values. These services may include portfolio management, direct investments, real estate, and alternative assets.
   
2. Estate and Succession Planning: Family offices play a key role in managing the wealth transfer process, ensuring that assets are distributed according to the family’s wishes, both legally and tax-efficiently.
   
3. Philanthropy and Charitable Giving: Many family offices assist families with their charitable efforts, including setting up foundations, managing donations, and ensuring compliance with legal and tax regulations.
   
4. Legal and Compliance Services: Family offices often have in-house legal teams or external advisors who ensure that the family’s wealth is managed in line with local and international laws. They help in compliance and governance matters.
   
5. Family Governance Services: Family offices provide services related to family meetings, governance structures, and family constitutions, ensuring alignment with long-term goals and values.
   

Setting Up a Family Office in Dubai

Establishing a family office in Dubai offers numerous advantages, including tax benefits, regulatory flexibility, and a business-friendly environment. However, the process requires careful attention to legal considerations. From selecting the right jurisdiction for family office operations to ensuring compliance with the regulations in Dubai, each step requires strategic planning.For families looking to secure their wealth and ensure future generations are well-supported, Dubai offers a unique platform for wealth management and family office services. By carefully navigating the legal framework in Dubai and ensuring the right governance and infrastructure, a family office can thrive in Dubai’s vibrant financial ecosystem.