Hawk-i Middle East - November 2012

Issue 1 | November 2012

Thinking

beyondtomorrow

FiduciaryFamily OfficeWills & ProbateSuccession PlanningEmployee Solutions Funds AdvisoryMedia & SportsL-S&S GmbHpart of the Hawksford Group

page 2 A welcome to Hawk-i, Middle East from Peter Murley

page 3 Nominee Agreements

page 4 Guest column: The last bastion of the final salary scheme - Simon Fielder, Ryland Gray

page 5 Importance of Pension Schemes

page 6 High Value UK Residential Property – The Changes Ahead

page 7 Meet the team

In this issue

Middle East

Peter Murley Chief Executive Offi cer

T: +44 (0) 1534 740132E: [email protected]

Welcome to the fi rst Middle East edition of Hawk-i, which aims to provide you with regular, informative and topical articles as well as updates on our business -a business driven by client needs and one which, I believe, is actively supported by a really great team of professional staff. Our offi ce in Dubai has now been open for over a year and we have recently moved into new premises at Jumeirah Lakes Towers, allowing us space to grow.

Hawksford's Thought paperThinking beyond tomorrow is Hawksford’s positioning statement, but how does it translate into the world around us? In October we launched the Hawksford thought paper – a collection of essays by leading contributors from business, society, education and culture; looking at the trends, issues and opportunities that might affect the world’s future.

This is ‘thinking beyond tomorrow’ in action – considering the factors around us now to help us plan for the future.

The launch of the thought paper took place at the House of Commons in London. Witness to the great decisions of the past and political home to those entrusted with planning for the future, the House of Commons was the perfect venue. Over 80 people attended the event, all of them understanding the importance of planning for tomorrow.

If you would like to receive a copy of our thought paper please email [email protected].

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Middle East | November 2012

We recently co-sponsored the 2012 STEP Arabia Conference held in Dubai. The event was very well attended by professionals from the Middle East and Europe and clearly demonstrated the increased interest in private wealth planning for clients in the region and beyond.

Jersey Finance was the event’s other sponsor, highlighting the already strong links developed between Jersey and the United Arab Emirates.

I provided what was, hopefully, a thought provoking analysis of issues around nominee agreements and how they could be damaging to a family’s wealth. The talk highlighted where nominee agreements can feature in a number of areas in the management of a person’s, or indeed a company’s, fi nancial affairs. It focused on such agreements provided by asset managers or stockbrokers where an individual enters into a personal contract with that asset manager or stockbroker to manage his assets.

In many instances, it can be advantageous for clients to hold their assets in some form of vehicle, be it a trust, company or other asset planning structure. Further, the assets in such a structure should be held in a vehicle established in a tax neutral location such

as Jersey. So for example, if the client chose to use a Jersey company through which to hold a variety of assets, then it would be the case that the client would own the shares in a Jersey company. That company could then be used as the vehicle to own a variety of assets around the world.

As the client would hold Jersey situs assets, being shares in the Jersey company, we would always recommend that he executes a Jersey will, which on death would be probated in Jersey, allowing the client’s personal representatives fairly swift access to the assets of the company. So for example, if the client resides in one of the many countries in the Middle East that does not impose direct taxation, the client’s estate at death would not suffer any form of tax wherever the assets are held by the Jersey company.

The talk highlighted that where assets are still retained by the individual and then managed under a nominee agreement, a number of problems can arise on death, not least the possibility of substantial tax obligations in the jurisdictions where the underlying assets within a nominee agreement are held. In both the UK and the USA, the legislation provides for the revenue authorities in each location to call for tax returns and, if appropriate, tax payment from a number of people involved in the relationship. At worst, even the bank or asset manager holding the assets in question could be called to account.

In summary, as in all matters relating to an individual’s fi nancial affairs, care needs to be taken when a client considers

entering into a nominee agreement for the management of his bankable assets. Our view continues to be that clients should always look at the advantages of incorporating some form of special purpose vehicle, which can then become the client of the asset manager. By following this course, a client not only protects themselves and their family from the problems associated with holding assets in their own name, but also has a greater degree of fl exibility for the administration of their fi nancial affairs.

Nominee Agreements

Tim CartwrightDirector


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What relevance does the word ‘pension’ have for a multinational workforce?

Multinational is not meant simply as those internationally mobile managers from Europe, UK, North America and other Western countries where state funded or private arrangements have been in force for a century or more; it also includes those workers from the Indian sub-continent, Malaysia, the Philippines and more recently from further East who have flooded into the oil rich countries of the Middle East over the past 50 years.

In the highly regulated Western financial world, a Pension, with a capital ‘P’ can be considered as being a government authorised regular savings arrangement, where tax concessions are granted by Revenue bodies, which are keen to see citizens take responsibility for their financial security in retirement. But in the less developed world the concept of a pension (shall we differentiate with a small ‘p’) is more informally seen as personal savings built up throughout a working life, with the view that those savings will purchase an asset capable of supporting the retired worker throughout the remainder of their life.

While a Pension (large ‘P’), will be generally invested with an institution to manage during the savings phase, and an annuity purchased to provide lifetime income, again from an institution once retirement age has been reached, a pension may well be the result of similar saving over the course of a working or, as is explained later, the result of an employer end of service obligated gratuity. The difference being that the lack of regulatory oversight and institutional influence, the lump sum created by retirement may well be used to buy a corner shop in Delhi for the retired worker’s children to run while the owner enjoys retirement, or a similar arrangement with a café or boarding house in the Philippines. It is by financial dreams such as these that the majority of workers who form the heart of the Middle East’s workforce are driven. One of the mechanisms established over 40 years ago to protect the long term financial interests of Middle Eastern workers was Terminal Gratuity, otherwise known as End of Service Benefit. This is a severance package, the size of which is determined by length of service and final salary. A benevolent concept, if a little outmoded now, and one unfortunately becoming increasingly onerous. The most obvious flaw is that there is no ring fencing

obligation on the employer, so the sum of all employees’ gratuities are assets of the employer until the employee leaves service or dies.

This lack of ring fencing has led to abuse by employers; some by unscrupulous activity, some by corporate failures, but whatever the reason, the result is the same: nothing in the coffers to pay off staff.

The other flaw, at least in modern times, is that the benefit is one of a final salary linked nature, and may well be the last of the very large global final salary obligations. The current outstanding obligation throughout the Arabian Gulf has been estimated at approaching $20 billion, although this figure is impossible to verify.

It is this last bastion of Final Salary benefit that must find an alternative structure. As a result of discussions that Ryland Gray and Hawksford have had with government departments within the United Arab Emirates, we know that this fiscal vulnerability is an area that concerns the authorities.

The solution can be found in the well-established concept of an Employee Benefit Trust. While there is no inherent trust law within the legislative framework of any Federal body of the AGCC, there have been a small number of EBTs established over the years, based in the Channel Islands and the Isle of Man. It is anticipated that this small number is set to increase considerably during the coming few years, for the following reasons:

• Thesegregationofemployeeassetsfromthecompany balance sheet

• Protectionforemployeesfromfraudorcorporatemalpractice• Compliancewithestablishedwesternaccountingandaudit

practice, SAP & GAAP etc and anticipating changes in AGCC requirements, which may replicate western standards or at least impose their own versions.

• Provisionofthefacilitytoincreasepersonalsavingbyallowingadditional contributions by payroll deduction.

After all is said, the prime driver for all expatriates, of whatever nationality, working in the Middle East, is still the acquisition of as much personal wealth as possible - no matter if the method of saving and the income enjoyed in retirement is spelled with a small or a large P.

The last bastion of the final salary scheme

Simon FielderRyland Gray

T: +971 432 43033 E: [email protected]

Ryland Gray is a provider of specialist financial administration and corporate consultancy services across the Arabian Gulf.

For more information please visit www.rylandgray.com

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Pension schemes and the subject of saving for one’s retirement have become hot topics in the Middle East, and particularly in the UAE where recently Hawksford has been delighted to take part in a number of round-table events to discuss the issues and challenges faced by employers and employees and to hear what these employers and the Dubai Government have to say on this subject and that of a "pension system" for expatriates. The general consensus is that many people are beginning to change their mind sets and consider their longer-term financial needs, but there is still much education needed in this regard, both for employers and employees. The Government of Dubai acknowledge the lack of organised systems for retirement income in the Gulf Co-operation Council (GCC) countries and the fact that many of the existing structures only offer real benefit to nationals. The existing structures for nationals are not without their problems and require some structural changes, enabling greater levels of transparency. Contributions also need to be increased to help meet future liabilities. In terms of non-nationals, there is nothing funded at government level, nor is there any pension legislation in place, so when we refer to pension schemes, what we mean is “retirement savings schemes”. There is an End of Service Benefit (EOSB), which is the amount payable to expatriate employees by an employer on the termination of employment. Employers, although they should be accruing for the payment, are not compelled to put funds aside during employment for their employees. In most cases, this liability is unfunded. From an employee’s perspective, depending on length of service, it can be the most significant benefit after remuneration. At present, it is up to the individual to save for his/her future, however we are seeing more employers providing a vehicle for

their employees to save for their retirement. We are seeing much greater interest from employers whether their need is to: · Attract, retain and reward employees· Provide their employees with a means to save for their

retirement· Incentivise these employees by contributing to their retirement

pot on their behalf or· Take their benefit liability off their balance sheet Employers are already beginning to see the benefits of providing these schemes to their employees. Corporates have become more open to discussing their needs with international providers who have experience in pension fund management and who understand the sensitivities of the region, particularly the need to protect company assets in order to honour end of service benefits and so they are happy to discuss more sophisticated solutions. From the government’s perspective, there is no doubt that the creation of a ‘pension’ system to replace the current benefit model will be challenging, however it would result in a number of advantages, one of which would be encouraging a savings culture in the UAE. This shift in culture is much needed. Failing to save for the future is quite a problem in the Middle East region, particularly in the UAE where the standard of living is higher than in most other GCC countries. For a number of reasons, many Western expats are not saving sufficiently. For some, the cost of living has increased dramatically since they moved to the region and expat packages have been tightened in recent years, reducing the amount of disposable income. That said, there is still very much a fast car, Friday brunch and nice holiday culture. Expats need to realise that they too have a responsibility to save for their future, as by virtue of working abroad, they are opting out of state pension schemes in their own country. At Hawksford our Employee Solutions team are highly experienced in providing a wide range of offshore employee benefit incentive schemes, which can help businesses recruit and retain personnel as part of an overall remuneration strategy.

Importance of Pension Schemes

Lynda O’Mahoney Business Development Manager - Middle East

T: +971 50 8595564E: [email protected]

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In March this year, the UK Chancellor, George Osborne, introduced new measures to:i. increase stamp duty;ii. extend the Capital Gains Tax regime; andiii. introduce an annual levy

where UK residential properties for more than £2m (and assets that represent such) are held by “non-natural” persons, including where they are non-resident.

These changes have been introduced with a view to “ensuring the fair taxation of residential property transactions”. It could be argued that the introduction of these changes have mostly been directed towards non-domiciled individuals who, in looking to acquire high value UK residential property, have taken professional advice and then created some form of structure, so that those properties are not held in their own name. However, if we look at the UK tax payers who may be affected, we see these changes could impact upon property investment companies, collective investment vehicles or property developers owning high value UK residential properties.

Many of our clients come from outside the United Kingdom, including the Middle East, India and the Far East. In looking to structure their affairs outside their home country, one of the reasons for creating some form of structure is privacy. We believe that desire will continue.

Where do we go from here? Many advisers have spent their spring and summer months fretting on how to deal with these changes. We now know that the draft legislation will be published on 11 December 2012. Here at Hawksford, we believe the action to be taken now and future action should include: Gathering information and taking preliminary advice, including ball-park valuations, and a review of the underlying purpose.

Now is not the time for wholesale unscrambling, given the costs involved and the tax complexities, especially since there is no mechanism or “amnesty” period for tax-neutral unwinding or reorganising before April 2013, and since there is as yet no certainty about the effectiveness of some of the proposed solutions.

Individuals who are likely to be affected by the proposals should discuss them with their advisers to see how they are likely to be impacted and the possible solutions, but with a view to being able to take swift action as and when the detail of the law is known.

It must be borne in mind that all relevant information, valuations and all rebasing or other restructuring as is necessary will need to be in place before the end of March 2013. This means preliminary work is needed now. The review window is narrow and closes on 31st March. Much of the planning is likely to be centred on the rebasing of acquisition costs for CGT purposes.

Other early work, in order to be as fully prepared as possible, includes the following:

• IdentifyingoffshorestructuresowningUKresidentialpropertyworth more than £2m or with a value close to this threshold and, where necessary, obtaining provisional or ball-park valuations but not necessarily at this stage incurring the expense of formal valuations.

• Reviewingthosestructuresinlightoftheproposalsandon the basis that they are implemented. Do the structures remain fit for their primary purpose? Would the costs and tax complications of major restructuring be justified, or are the proposed charges acceptable, assuming the structure does continue to satisfy the primary purpose?

• Reviewinganydebtsonthepropertyandthenatureandamount of the debt. Will existing lenders be prepared to continue to provide facilities and, if so, on what terms if a restructuring is needed?

• Reviewingallcontractualrightsandliabilitiesapplicabletoeach structure. They would need to be taken into account if the structure has to be adjusted.

• ForclientssimplywantinganonymityandforwhomInheritanceTax is not a primary concern, consider putting their structures into nominee companies.

• Whereacompanymayneedtobeliquidated,considerthetime required for the liquidation process in the jurisdiction concerned. Some need more time than others.

• Beforeembarkingonanymajorrestructuring,takespecialistadvice on the tax issues which can be highly complex. We are not tax advisers (and this note should not be taken as advice but simply general guidance), but we will be pleased to work with clients’ own tax advisers in reviewing structures and implementing their tax plans.

Despite these changes, we do believe London continues to be an attractive place for many around the world who seek a residential base in the capital. Undoubtedly the acquisition and ongoing costs may increase, but these factors will simply be taken into account when looking at acquiring such property in the relatively safe haven of London when compared with other centres around the world.

High Value UK Residential Property – The Changes Ahead

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Lynda O’Mahoney Business Development Manager - Middle East

T: +971 50 8595564E: [email protected]

Tim CartwrightDirector

T: +44 (0) 1534 740115E: tim.cartwright@ hawksford.com

James HoweDirector

T: +44 (0) 1534 740246E: james.howe@ hawksford.com

Daniel Hainsworth Trust Manager


Lynda has over 10 years’ experience in business development and professional services in the Middle East financial services industry.

She has a 1st class hons. degree in Business Studies and also holds an Islamic Finance Qualification and Investment Advice Certificate. Lynda is responsible for growing opportunities, building new business relationships and building the Hawksford brand in Dubai and the Gulf states. With extensive experience of looking after Middle Eastern clients, Lynda is aware of the cultural differences, regional mentality and the importance of long-standing relationships in these markets. Lynda specialises in the provision of employee solutions, the establishment of corporate and private Trust structures and advising clients of suitable and efficient wealth structures that can protect and enhance the family wealth for future generations.

Tim has helped clients and their advisers for over 25 years with the preservation and enhancement of their wealth.

Tim is a full member of STEP and also holds the DTEP Diploma from the Institute of Financial Services. He is a member of the Institute of Directors and holds the Diploma in Company Direction from the IoD. Tim sits on the board of examiners at Highlands College, Jersey for the Certificate of Offshore Administration.

Tim is a member of the Hawksford Group board and is one of the members that took part in the management buyout from Rathbone Brothers plc in October 2008.

Tim is part of the executive team that heads up Hawksford Advisory and Hawksford Wills & Probate. He has spearheaded the development of new business and relationships within the Family Office and Employee Solutions area in the Middle East, which culminated in the opening of Hawksford’s Dubai branch office in the summer of 2011. He works closely with Lynda O’Mahoney, who is based in Dubai. He is also involved in the development of Hawksford’s new Swiss office based in Zurich, operating under the name of L-S&S GmbH.

James has been working within the offshore fiduciary services sector for over 20 years.

After qualifying as an associate of the Chartered Institute of Bankers in 1992 he also became a member of the Society of Trust and Estate Practitioners in 1996.

In his role as Client Service Director, he administers the Fiduciary structures for both real estate and investment assets. He also has specific responsibilities for clients in the Middle East.

Daniel has been working in the offshore finance industry since 2000. He is a qualified Trust Estate Practitioner, a full member of STEP and is currently studying for the STEP Advanced Certificate in Trust Disputes.

Daniel has built up a sound technical knowledge of wealth structuring and client administration, and has developed a pragmatic approach to client service during his roles in Coutts, HSBC and Trustcorp. At Hawksford Daniel focuses on clients who are mainly based in the Middle East, with a focus on property, investment and family office requirements. Daniel plays an active role in business development and travels to the Middle East to visit new and potential clients.

Nathan has six years of experience in the offshore finance industry. His primary focus for Hawksford is providing excellent service for his clients who are mainly based in the Middle East, with assets such as online lead generation and marketing consultancy businesses and property.

Nathan's role involves assisting with the development of new business, which includes travel between Jersey and the Middle East. Nathan is a qualified Trust Estate Practitioner (TEP) and a full member of STEP, having qualified in March 2011.

Meet the team:

Nathan Taylor Senior Company & Trust Administrator

T: +44 (0) 1534 740241E: nathan.taylor@ hawksford.com

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Hawksford Group (and Hawksford International) are the Registered Business Names of Hawksford Trust Company Jersey Limited which is regulated by the Jersey Financial Services Commission.

FiduciaryFamily OfficeWills & ProbateSuccession PlanningEmployee Solutions Funds AdvisoryMedia & SportsL-S&S GmbHpart of the Hawksford Group

Hawksford Group Jersey | British Virgin Islands New Zealand | Singapore Switzerland | United Arab Emirates

15 Esplanade, St HelierJersey, JE1 1RB Channel IslandsT +44 (0)1534 740 000F +44 (0)1534 740 074www.hawksford.com

For feedback and suggestions, or if you would like to contribute to future editions of Hawk-i, please contact:

Rebecca StannardMarketing & Communications Manager



Documents

Hawk-i Middle East - November 2012