Matters of inheritance in the UAE are governed by Federal Law No. 5 of 1985 (amended in 1987) regarding the Civil Transactions in the UAE (“the Civil Code”), and by Federal Law No. 28 of 2005 regarding the UAE Personal Affairs Law (“The Personal Affairs Law”). However, as a general rule, inheritance issues for Muslims are dealt with in accordance with Sharia’h, whereas for non-Muslims, the law of the deceased’s home country may apply provided there is a Will or a corporate structure in place to address an eventuality. Accordingly, it is highly imperative for the investors or residents of UAE to have a Will in place absence of which directly attracts provisions of Sharia’h law with respect to the inheritance of their assets. Upon death, the personal assets of the deceased, including local bank accounts, shall be frozen (Article 379 (4) of the Commercial Transactions Law, UAE Federal Law No. 18 of 1993) till the local court releases the order of succession.
As a matter of reference, when Sharia’h law is applied to the properties of the deceased, the wife of the deceased receives one-eighth of the total estate, while the children receive one-sixth of the share. For every share received by the daughters, the sons receive twice as much. Amendments were made to the Civil Code in the year 1987 and the Article 17/1 further states that inheritance shall be subject to the law of the deceased’s home country at the time of death. This law was promulgated to curtain the confusion surrounding inheritance issues for expatriates. Therefore the law of the domicile country of the deceased would apply. However, as per Article 5 of the Code, provisions have been made to apply the law of the United Arab Emirates to the Wills made by aliens disposing of their real property located in the State. Further, the Personal Affairs Law (No 28 of 2005) made it clearer that, a non- Muslim expatriate who is resident in the UAE can opt for the law of their Domicile Home Country to be applied to the distribution of their UAE assets, provided they have a legally recognized Will.
Freehold Property & Corporate Structure
Though the freehold property is governed by the inheritance laws of Sharia’h and may not be distributed in accordance to the conditions of the Will, the recent practices show the local authorities treat the inheritance of ownership of the freehold property favorably in the case of non-Muslim investors provided there is a Will or corporate structure in place. However, the local fraternity is of the opinion to examine the application of Sharia’h closely in the case of real properties owned by the foreigners. Considering the possibility of application of Sharia’h laws, the investors may seek the option of corporate structure in place to own real estate properties in UAE in addition to have a Will.
Special Purpose Vehicles for holding shares in UAE registered companies (Limited Liability Company/Free Zone Company)
Similar treatment shall be applicable to the inheritance of ownership of shares in a locally registered limited liability company as well as a company registered in a Free Trade Zone. It may be considered to own the shares of a local mainland company or a free zone company by an offshore entity formed outside UAE. Among other basic advantages, bringing an offshore structure in the line of ownership of locally registered company offers convenience in inheritance since amendments in the documents of the local company is not warranted unless there is change in management.
The beneficial owner of an offshore entity formed outside UAE, may further opt for establishing a trust structure in place to ensure a smooth succession in case probating a Will at the court in an offshore jurisdiction is affected by the residence status of the deceased. In light of the above, considering British Virgin Islands as the preferred offshore jurisdiction for the time being, the trust may be established in accordance to the Virgin Islands Special Trust Act – Vista Trust – by which no probate is required and the director of underlying BVI Company has freedom to control the assets owned by the BVI Company.
It may also be considered the shares of the BVI Company be held in the joint name of the tenancy of the survivorship with the family members (wife/children) which will allow smooth succession from father to children. However, the other side is immediate ownership to the shares and thereby acquires rights.
Guardianship of Minor Children
It is worth noting and should consider in line with the inheritance, the custody and guardianship of minor children. The legal way to address this vital matter is to appoint individual(s) to care the children by naming them as testamentary guardian(s) in the Will. Accordingly guardian(s) can step in to the shoes and care the children till they become adults if they were minor at the time when the parent dies.
Conclusion:
The UAE Civil Code requires the immovable assets should be distributed to the legal heirs as per the provisions of Sharia’h law
Owning real estate is considered as owning an immovable asset and technically this should be distributed as per Sharia’h law
It is widely being debated and there are tested cases that foreign law applied and the real property distributed as per the deceased’s Will
The UAE Courts are likely to decide on the applicable law on a case by case basis.
It is always advisable to execute and register a Will in UAE which has been written under the laws of home country or have the corporate structure in place in an offshore jurisdiction outside UAE which ultimately owns UAE situs assets and properties.
