UAE's landmark legal reforms that shaped our personal finances in 2020

The Emirates introduced major amendments that cover inheritance, bankruptcy, bounced cheques, life insurance and Covid-19 economic relief

Legal reforms announced in the UAE this year will affect various financial aspects of UAE residents' lives such as life insurance, inheritance, bounced cheques, Covid-19 economic support, access to loShow more

This year has been one of landmark reforms in the UAE, with the government introducing sweeping amendments to laws on inheritance, bounced cheques, bankruptcies and economic support during the Covid-19 pandemic.

“The sweeping changes come as part of the UAE’s efforts to develop its legislative and investment environment,” says Mihaela Moldoveanu, head of LegalTech at Burj Financial and head of advisory at The Metis Institute.

“The laws have followed suit to our changed reality in the UAE, and are presenting the country as a welcoming, tolerant home for people from various backgrounds, their families and their investments.”

The National spoke to legal experts about this year's regulatory changes, their effect on personal finances and whether there will be additional reforms next year.

Decriminalising bounced cheques

The UAE updated the Federal Law on Commercial Transactions in October with several new provisions that aim to discourage criminal lawsuits against people and businesses for bouncing cheques.

The amendments come into effect in 2022 and will introduce a mechanism that ensures banks partially pay the amount to the beneficiary after it is deducted from the available funds in the account of the cheque issuer.

“The recent issuance of the new decree-law on commercial transactions [Decree-Law No 14 of 2020] containing provisions that aim to discourage criminal prosecution in relation to bounced cheques constitutes a major development in the UAE legal landscape,” says Nour Gemayel, an associate at BSA Ahmad Bin Hezeem & Associates.

“[It] will greatly affect the way individuals deal with their banks and guarantee the finance they obtain as they will no longer be exposed to criminal liability in an event of default.”

Access to joint bank accounts

Amendments to the law on commercial transactions also cover joint bank accounts. If one of the account holders dies, the other account holder must notify the bank within 10 days.

Once it is notified, the bank will now only limit their ability to withdraw the deceased’s share of funds rather than freeze the account entirely.

“As opposed to the situation before the issuance of the changes, where the entire account would be blocked until the finalisation of the succession of the deceased account holder, the law now provides for the freezing of the share of the account belonging to the deceased only, thus facilitating the process for the other account holder, seeing as he or she continues to have access to the funds while the succession is organised,” Ms Gemayel says.

Full foreign ownership of businesses

In November, the UAE introduced reforms to commercial companies' law that allow 100 per cent foreign ownership of an onshore company. There is no longer need for a foreign-owned company that wishes to establish a branch or a representative office in the UAE to have a local service agent.

The requirement that Emiratis hold a minimum ownership of 51 per cent in most businesses in the country was also abolished.

The changes come into force on January 2, 2021. However, amendments removing the need for Emirati partners and local service agents will become effective six months after the publication of the law in the Official Gazette.

“This will attract foreign investment and capital to the UAE economy. These changes will have a significant impact in ensuring foreign investors can establish business in the UAE and enable investment into the UAE from all nationalities,” says Sarah Malik, chief executive and international disputes counsel at SOL International.

The UAE business community believes the changes to ownership laws will promote business and attract foreign investment.

“According to the World Bank Ease of Doing Business Indicator, the UAE was ranked 16 out of 190 countries and is now among global leaders,” says Danish Chotani, chief executive of Burj Financial.

“It will continue to rise in the ranking, based on this year’s sweeping regulatory and legislative changes.”

Improved bank loan access for SMEs

In September, the UAE announced that it would allow small and medium enterprises to use moveable assets, including tools and raw materials, as collateral to secure loans.

Generally, SMEs find it hard to secure bank loans due to their size and lack of financial history, legal experts say.

“SMEs play a huge role in the UAE economy and represent the highest market share of business and employees within the private sector. This [law] is encouraging to ensure SMEs continue to survive and thrive as an integral part of the economy,” Ms Malik says.

Changes to inheritance law

On November 7, the UAE announced sweeping changes to the country's personal status and family laws. Islamic law will no longer be applied to the division of assets if an expatriate die without a will. Instead, a person's nationality will dictate how their assets are divided, unless they have written a will. The exception is for property purchased in the UAE, which will be managed according to UAE law.

“The 2020 reform re-affirms the principles that were laid out in 2015 with the launch of the DIFC Courts Wills Service Centre and the enactment of rules allowing non-Muslim residents to register their English-language wills and benefit from a common-law jurisdiction for their succession,” Ms Moldoveanu says.

The Abu Dhabi Courts Judicial Department followed suit with a similar registry in 2017.

The amendments to the inheritance law will create a level playing field for investors with assets in the country, Ms Moldoveanu says.

However, residents and investors who die without an estate plan – a will, a trust or a foundation – and those with wills drafted abroad are unlikely to benefit from the recent law changes, she says.

“Expats’ home wills are presently not upheld by the Personal Status Courts. The deceased’s family needs to file an appeal at the Civil Court against the Dubai Personal Status Court’s Sharia Succession Judgment [so] that the home wills are enforced,” says Cynthia Trench, a principal at Trench & Associates.

As a result of this, many expatriates have arranged for their wills to be issued by the DIFC, Ms Trench says.

Economic support

In March 2020, the Central Bank of the UAE introduced the Targeted Economic Support Scheme to support the economy during the Covid-19 pandemic. The initiative offered local banks zero-interest, collateralised loans of up to Dh50 billion and a capital buffer package worth Dh50 billion.

The programme was introduced to assist the private sector for up to six months. This has now been extended until June 30 next year. More than 310,000 retail customers, 10,000 SMEs and 1,500 private companies have benefitted from the programme.

“This initiative is an example of the UAE assisting the survival of private businesses and ensuring the ease of business,” Ms Malik says.

Changes to bankruptcy law

The UAE updated the country's bankruptcy law in October to help people and businesses unable to repay their debts or keep up with financial payments due to pandemics, natural disasters or wars.

The changes will help cash-strapped debtors avoid declaring bankruptcy, encourage them to reach a settlement with creditors and agree on debt restructuring. Previously, businesses that were unable to pay their creditors had to file for bankruptcy immediately.

“This has been extremely helpful for businesses that are facing challenges to either consider protection under the bankruptcy law or debt restructuring or declare bankruptcy in extreme circumstances,” says Essam Al Tamimi, chairman of Al Tamimi law firm.

Life insurance sector overhaul

In October, the UAE Insurance Authority unveiled new regulations to streamline life and family takaful insurance.

It capped the overall commission that can be paid on a policy over its entire duration. Financial advisers are also now required to include a mandatory 30-day “free-look” period in the policy and allow customers to cancel it free of charge within the first month of the policy.

The regulatory body has also imposed increased disclosure requirements on financial advisers, who must provide customers with a benefit illustration before the policy begins and a policy statement every six months.

Outlook for 2021

Legal experts say the UAE will continue to issue legal updates next year. Amendments will be made in the near future to “enhance consumer protection in relation to technology products and data privacy”, Ms Gemayel says.

“Laws will also be put in place to combat banking fraud.”

Meanwhile, Mr Al Tamimi predicts further changes to the commercial companies' law, the commercial transactions law, the federal banking law, maritime law, industrial law and the law governing free zones.

“All this will work towards providing opportunity to the private sector,” he says. “It is also a diversion from the old style of licensing and managing business towards a progressive economy.”