Sharia in a nutshell - STEP · Sharia in a nutshell Quran – Holy book of Muslims Hadith – the “by-laws” Sunnah – the “jurisprudence” The term sharia comes from the Arabic

Sharia in a nutshell

Quran – Holy book of Muslims Hadith – the “by-laws” Sunnah – the “jurisprudence”

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Presentation Notes

The term sharia comes from the Arabic language term sharīʿah, which means a body of moral and religious law derived from religious prophecy, as opposed to human legislation. Sharia – religious law governing members of the Islamic faith and is derived from the religious precepts of Islam, particularly the Quran and the Hadith. Hadith – is one of various reports describing the words, actions, or habits of the Islamic prophet Muhammad. The term comes from Arabic meaning a "report", "account" or "narrative". Hadith are second only to the Quran in developing Islamic jurisprudence, and regarded as important tools for understanding the Quran and commentaries (tafsir) written on it. Some important elements of traditional Islam, such as the five salat prayers, are mentioned in hadith. Sunnah – means path or way. In Islam, it is a primary source of law taken from the sayings, actions and approvals of the Prophet Muhammad

Sharia in the world

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48% of world proven oil and 43% of gas reserves Dubai: Six GCC countries figured in the top 15 countries globally in the ranking of proportion of millionaire households, according to The Global Wealth 2015 report by BCG. Bahrain and Qatar were in second and third positions with 12.3 and 11.6 percent share, respectively. The study included both the national and expatriate households.

Influence of Sharia

UAE Constitution Article 7: Islam is the official state religion Islamic Sharia the primary source of legislation

In absence of UAE law provision UAE courts will pass judgment according to Sharia

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Authorities attempt to blend the interpretation of Sharia with the customs and policies of non-Muslim expatriates while, at the same time, maintaining the integrity and values the founders intended

Influence of Sharia

Personal Status Marriage Divorce Child – custody Inheritance

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UAE Persponal Status Law: Article 1 that "the law shall apply to all UAE nationals except where non-Muslim UAE nationals have special rules relating to their specific creed or sect".

We need to talk…

Married, two minor children (a boy & a girl) Hindu religion Assets in Abu Dhabi, Dubai and abroad Parents alive, one brother

…lets talk about Akshay

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Probate Procedure in the UAE Local Courts in Charge (Civil – Family Law Section) Which Law governs the Estate?

• High Courts Jurisprudence vs• Lower Courts practice

UAE assets temporarily frozen

What if Akshay passes away in the UAE?

Father Mother

Brother Akshay Wife

Son Daughter

16.67% 16.67%

None(Son blocks

brother)12.5%

18.06%(Half of the son’s

share)36.11%

Know your Sharia heirs

Local Needs International Ambitions

The Middle East Legacy Planning (R)Evolution

Local Needs International Ambitions

Same Goal

The Middle East Legacy Planning (R)Evolution

Middle East holds 48% of the oil reserves

Natural gasOil

Middle East holds 43% of the natural gas reserves

Oil & gas make up about 1/3 of GDP of GCC economies. GCC economies must diversify further if they want to be able to create more jobs for their nationals.

Distribution of proved reserves in 2015

Distribution of proved reserves in 2015

(Source: BP Statistical review 2015)

GCC: Oil and Gas Powerhouse

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48% of world proven oil and 43% of gas reserves Dubai: Six GCC countries figured in the top 15 countries globally in the ranking of proportion of millionaire households, according to The Global Wealth 2015 report by BCG. Bahrain and Qatar were in second and third positions with 12.3 and 11.6 percent share, respectively. The study included both the national and expatriate households.

“USD 1 trillion to pass from second generation business families to millennials within 10 years”

(Source: The Gulf Family Business Council)

Local needs

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Only 30% of family businesses make it to second generation…

not accounting offshore assets!


“USD 1 trillion to pass from second generation business families to millennials within 10 years”

Local needs

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Only 30% of family businesses make it to second generation…

ADGMConsolidated Accounting, tax & estate

Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific

71%

(Source: UBS/ Campden Wealth Global Family Office Report)

Local needs

Business-Owning Families

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Percentage of Business-Owning Families Family businesses are a crucial part of the GCC economy

Merchant families under attack!

Demographic Economic Financial Educational

Local needs

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- millennial gen / siblings born to different mothers = potential rivalry - less protection / increased competition - days of borrowing against name are over (guarantees required) - family members not engaged in business early on / no notion of transition

“Only 15-20 percent of family businesses are planning their succession”


Local needs

Western tool

VS

Regional assets

Local needs

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Popular for foreign assets; limited for domestic assets


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

(Source: The Global Financial Centres Index 20)

International Ambitions


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

(Source: The Global Financial Centres Index 20)

Financial Centers on the Rise

Shanghai

Qingdao

UAE

Hong Kong

Casablanca

Singapore

Shenzhen

Luxemburg

Toronto

Gibraltar


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Mentioned within the last 24 months: Shanghai – 108 Qingdao – 92 Dubai – 47

Most Competitive Centres

UK

Hong Kong

BVI

US

Singapore

Switzerland

Cayman Islands

Luxemburg

Jersey

Guernsey

Netherlands

UAE


Centres on the rise

UK

Hong Kong

US

UAE

Most Competitive Centres

UK

Hong Kong

BVI

US

Singapore

Switzerland

Cayman Islands

Luxemburg

Jersey

Guernsey

Netherlands

UAE


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Competitive Centres

ADGMDIFCVS

To become regional hub for wealth management and succession planning

Regional assets


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Closely inspired from FCA Wealth management working group findings 15 April 2017, White paper (review, benchmarking); recommended VISTA trust (trustee duties may conflict with Settlor’s wishes to continue operations of a company/carry significantly greater financial risk “DIFC Private” professionally managed forum that can provide services over different levels)

Independent regulatory framework Independent Courts “Sharia compliance”

• Horizontal • Vertical

Regional assets

ADGMDIFCVS

Common Law


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Horizontal – review of particular arrangements Vertical – testing for compliance

Europe1995 North

America1994

DEVEC1999

ASIAPacific2001

(Source: UBS/Campden Wealth Family Office Report)

Targeting SFOs

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Average Year Founded

Europe52% North

America57%

DEVEC65%

ASIAPacific

76%


Targeting SFOs

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Proportion of Family Offices Formed Since 2000

Europe52% North

America57%

DEVEC65%

ASIAPacific

76%


Solutions as of today

1. ADGM SPV2. Foundation Regime (AGDM -> DIFC to come)3. DIFC WPR4. Trusts (DIFC and ADGM) and PTCs

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Proportion of Family Offices Formed Since 2000

Europe52% North

America57%

DEVEC65%

ADGM SPV

IBC within tier 1 financial center sophisticated framework / light requirement flexible – shelf cos permitted, ability to “morph” portable – migration regime available

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Ø IBC within tier 1 financial center Ø sophisticated framework / light requirements Ø flexible – shelf cos permitted, ability to “morph” Ø Portable – migration regime available


Family Unity

Family Education

Philanthropy

Bank account

ADGM SPV: Bringing SPVs closer to home

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Illustration Offshore to onshore The legal continuation enables the company to maintain all its history and track record, e.g. existing contractual relationships with third parties, banking relationship (including credit facilities) while availing the benefits of the new jurisdiction.


Family Unity

Family Education

Philanthropy


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1981 Mitsubishi Lancer SL


Family Unity

Family Education

Philanthropy


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Family Unity

Family Education

Philanthropy


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Family Unity

Family Education

Philanthropy


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Family Unity

Family Education

Philanthropy

Bank account

ADGM Hold Co

Bank account

SubsidiariesContracts

Substance (onshore jurisdiction) Physical premises DTT Benefits

IBC Co ADGM SPV

Family Education

No substance (offshore jurisdiction) No physical premises No DTT benefits

Bank account ContractsSubsidiaries

Bank Bank



No Shareholders Independent legal personality Assets donated are owned by the Foundation in its own name Parties:

• Founder• Foundation Council• Guardian • Beneficiaries

Perception matters: cosmetically more acceptable?

ADGM Foundation Regime: Model

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Advantages : subjective vs. objective (location and legal personality) perpetuity – can be formed for an unlimited period of time and may continue until their objects have become fulfilled facilitate ownership of UAE real estate for GCC nationals preventing family disputes civil systems increasingly moving to recognize trusts, merits of civilian foundations laws being recognized by a number of common law jurisdictions (Jersey, Guernsey, Isle of Man)]


ADGM Foundation Regime: Model (cont’d)

BeneficiariesFounderAssets in Distributions

Guardian

Foundation Council

ADGM FOUNDATION(constituted by charter and by-

laws)

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Goal – to develop a [new type of legal entity with its own attributes] domestic solution to regional legacy planning. [civil systems increasingly moving to recognize trusts, merits of civilian foundations laws being recognized by a number of common law jurisdictions (Jersey, Guernsey, Isle of Man)]


Legacy planning and asset protection mechanisms to protect the founder’s wishes

Robust governance structure Founder maintains control Additional security through Guardian supervision High level of discretion and flexibility Fully digitalized and efficient registration process Reputable, tier 1 financial center

ADGM Foundation: Key Features

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GCC families:• strengthen control over assets that are key to the GCC economy• facilitate succession – no involvement of foreign entities• income protection

International families:• alternative to current foundation and trust arrangements• foundation acting as PTC in local and international trust structures

ADGM Foundation Regime

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Key policy considerations:

Client confidentiality Governance controls Asset protection

Philanthropy


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[ confidentiality of the foundation arrangement VS sufficient access by Registrar - balance between minimal disclosure of private affairs and ADGM objectives and obligations, including international standards and treaty obligations.] [safeguarding founder's ability to exercise control while ensuring effective governance mechanism]


Documents: Charter & By-laws Minimum Assets : USD 100

• Any assets Reservation of power Portable: Redomiciliation allowed Registration Fee : USD 200


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General features Reservation of power to maintain accounts but not required to audit [consistent with regime of Rest. Scope Comp]


Philanthropy

Any disposition of property determined under the law of its incorporation (ADGM)

Foreign law not recognizing foundation do not affect foundation’s validity

Rights asserted under foreign heirship law or other claims do not affect foundation

Foreign judgement purporting to give rights to heirship rights or claims not recognized

Express Firewall provision

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[limitation of effectiveness where assets are located in a foreign jurisdiction] rights asserted under foreign heirship law or other claims [derived from personal relationship with founder] do not affect foundation


Philanthropy

Required• Founder, Council, Beneficiaries

Optional• Registered agent • Guardian

Parties

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Guernsey model: Guardian ([to supervise foundation council and ensure it acts in accordance with By-laws] may be Founder of beneficiary but neither Councilor, nor a sole Beneficiary [Founder, Councilor and Guardian may be corporate body] [at least 2 councilors, may be Founder] [no need for "qualified professional" as council member]] [Beneficiaries identified by name of by class] Optional Registered agent (Registered address) [Physical presence, at the discretion of founder to appoint registered]


Philanthropy

No charitable purpose But useful in active philanthropy

• e.g. foundation in combination with company limited by guarantee

Purpose


Philanthropy

Part A

Charter Name and Registered Number Date of Establishment Registered address Name/Address of Councilors

Publicly available information


Philanthropy

Part A Part B

By-laws Name/address of

• Beneficiaries• Guardian• Founder/UBO

KYC

Charter Name and Registered Number Date of Establishment Registered address Name/Address of Councilors



Philanthropy

Restricted vs available No, unless Charter or By-laws provide otherwise


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Presentation Notes

(Jersey) - [lean towards Beneficiaries rights to info some info. differentiate between what is available and what is restricted]

Set of rules relating to inheritance issues of non-Muslims Clear mechanism to pass on “Dubai” and “Ras Al Khaimah (RAK)”

estate DIFC rules to complement existing UAE laws

The DIFC WPR

(Source: DIFC Wills and Probate Registry - www.difcprobate.ae)

Over 2,600 wills have been registered

Approximately 30 wills registered each week

70% of registered wills are mirror wills

39.10% of registrants are women & 60.90% are male

31.67% of all wills registered are for Indian passport holders

60% are Europeans

Youngest registrant was 23 years old, oldest was 94

8 probate cases – 6 granted

Facts and Figures

When? fully operational since 30th April 2015

Who? non-Muslims over age of 21; residency is not relevant

What Form? standard

What Law? DIFC Laws

Which Estate? Dubai and RAK located assets

What Assets? movable and immovable

The DIFC WPR

Custodian? DIFC Registry

Executor? TBD by Testator

Witness? any capable individual

Guardians of minor children? TBD by Testator

Supporting Documents? per DIFC Practice Directions

Authority? DIFC Court to issue grants/orders for assets distribution

Fees? USD 2,800 for a Standard Will and USD 4,200 for Mirror Wills

The DIFC WPR

Abroad • Shortcut to devolution of “Dubai” and “RAK” assets• No involvement of local (civil) courts

In the UAE• No involvement of local courts • No risk of application of Sharia Law• Faster & cheaper

If Akshay passes away


Philanthropy


Philanthropy

To be released any time Based on the Dutch model

Up in the air: DIFC Foundation Regime

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Presentation Notes

(Jersey) - [lean towards Beneficiaries rights to info some info. differentiate between what is available and what is restricted]


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

UAE new tools in practice


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

BVI Co.

JAFZA Co.

100%

100%



Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

BVI Co.

JAFZA Co.

100%

100%

JAFZA Co.

100%

DIFC will



Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

100%

DIFC will

JAFZA Co.

100%

DIFC willBVI Co.

JAFZA Co.

100%

100%



Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

Founder


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

100%

JAFZA Co.

BVI Co.

JAFZA Co.

100%

100%

JAFZA Co.

100%

DIFC will

Foundation

Beneficiary(ies)



Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

Hold Co.

DIFC will

Foundation

Hold Co.

DomesticOperating Co.

ForeignOperating

Co.

DomesticOperating Co.

Bank Bank Bank

Bank



Family Unity

Europe65%

Bank accountBank account

Founder

100%

Beneficiary(ies)

Bank account

Hold Co.

OpCosUAE &

worldwide.

IP rights etc.

Bank


Founder

100%

Beneficiary(ies)

Provision of services by

SFO

Hold Co.

OpCosUAE &

worldwide.

SFOUAE

IP rights etc.

Bank


100%

Bank account

Provision of services by SFO

Settlor Beneficiary(ies)

Hold Co.

SFO/Trust CoUAE

OpCosUAE &

worldwide.

IP rights etc.

Bank



Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

What will you take home?


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

See you in Dubai!


Family Unity

Family Education

Philanthropy

Europe65% North

America52%

DEVEC81%

ASIAPacific71%

See you in Dubai!

5th of November 2017

ADGM

Family Unity

Family Education

Philanthropy

Europe65%

DEVEC81%

See you in Dubai!

Aline von Düring

[email protected]

www.m-hq.com