Relocation and living abroad – Tax & family affairs

October 2024 /

• Estate Planning
• International

When you are -genuinely- domiciled abroad (such as Dubai in the United Arab Emirates), relevant questions may (and will) arise regarding wealth accumulation in an international context, whether due to your family connections, your nationality, and of course the geographical location of your activities and investments.

**Living in low tax country**

The perceived absence of taxation in the United Arab Emirates (or other jurisdictions with similar benefits) should not overshadow potential foreign tax liabilities.  Not being taxable there does not mean no tax at all, especially in other countries where you have situs assets or generate income or gains.   

It is also important to note that the United Arab Emirates (i) cooperate with the international community on tax matters (CRS automatic exchange), (ii) have a considerable network of non-double tax treaties concerning income and wealth tax (but only few for inheritance tax, e.g. with France), and (iii) recently introduced a corporate tax at a rate of 9% since January 1, 2023, which free up additional perspectives and opportunities for both residents and non-residents.

As a result, and considering the somewhat unusual rules of UAE double tax treaties, a careful review and adequate structuring must be organized to avoid -or at least minimize- undesired adverse effects on your wealth.

**Sharia Law and Its Impact on Families and Successions**

In Dubai, but more generally in Muslim countries, Sharia law plays a significant role in matters pertaining to family and succession.  Under Sharia law, inheritance is distributed according to specific rules set out in Islamic law, which may differ from Western legal traditions.  These rules stipulate fixed shares for various family members and guardianship specificities, and non-Muslims may also be affected by these rules if they do not have a will or estate plan that specifically addresses Sharia compliance.

For expatriates and non-Muslims living in Dubai (and more generally in Muslim countries), it is paramount to understand how Sharia law works and might affect their estate planning and family affairs.  Without a properly drafted will or estate plan, one’s assets may be distributed in a way that does not align with their wishes and/or their home country’s legal framework.  It is therefore advisable to work with seasoned professionals who can navigate both local laws and international considerations to ensure that your estate planning is comprehensive and effective.

**French Law on Forced Heirship Provisions**

French law imposes strict forced heirship rules that can significantly impact estate planning for individuals with ties to France.  Under French inheritance law, a minimum portion of an individual’s estate must be reserved for their descendants.  This portion is known as the so-called “reserved portion” (part réservataire) and varies depending on the number of children.

The reserved portion is designed to ensure that children receive a minimum share of the estate, regardless of the deceased’s wishes.  The remainder of the estate, known as the “disposable portion” (quotité disponible) can be freely distributed according to the deceased’s wishes.  This forced heirship provision is mandatory and cannot be overridden by a will.  This French hereditary reserve does not exist in certain foreign countries (e.g. UK or United States of America).

**French Law No. 2021-1109 of August 24, 2021 enhanced protection for the French hereditary reserve by adding one provision in the context of an international succession:

*”When the deceased or at least one of their children is, at the time of death, a national of a Member State of the European Union or habitually resides there, and when the foreign law applicable to the succession does not provide any protective mechanism for the children’s reserved rights, each child or their heirs or successors may take a compensatory deduction from the existing assets located in France on the date of death, in order to be restored to the reserved rights granted to them by French law, within the limit of those rights.”*

This provision introduces the possibility for heirs entitled to a reserved share, who are “disadvantaged” by foreign legislation, to deduct the equivalent of their reserved rights from the deceased’s assets located in France.

For individuals with assets in France, it is essential to understand how these rules might affect the distribution of their estate, though practitioners are already questioning their effectiveness in an UE context.  An international estate plan must consider these provisions to avoid potential conflicts between French law and the laws of other jurisdictions.

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Let us know if you need any further clarification!