The new UAE Federal Waqf Law - Is it a Trust Law?
On 3 May 2018, the Government of the United Arab Emirates (UAE) issued the new UAE Federal Waqf Law No. 5 of 2018 (the Federal Waqf Law) governing Waqf activities taking place across the UAE.
Waqf is defined by the Federal Waqf Law as either the allocation of a benefit (returns generated from a certain asset) to a beneficiary, or the allocation of the benefit as well as the retention of the possession and preservation of the underlying asset.
The Federal Waqf Law is adopting similar provisions to the Dubai Waqf Law No. 14 of 2017 issued by the Government of Dubai in November 2017 (the Dubai Waqf Law) perhaps in an attempt to apply a comprehensive and unified legal framework and governance structure for Waqf across the various Emirates.
Can Waqf now be used for commercial and investment purposes?
Traditionally, the concept of Waqf has been dominantly used for charitable and social solidarity purposes. This seems to be the principal objective and philosophy behind the issuance of the Dubai Waqf Law, as explicitly stated therein. However, unlike the Dubai Waqf Law, the Federal Waqf Law does not contain any provisions setting out specific objectives for the law.
It is worth noting that there are a number of characteristics of Waqf that could potentially make it useful in a commercial context, these being:
- Both Al Waqf (the Owner of the asset or right subject to Al Waqf) and the beneficiary of a Waqf (the Beneficiaries) can be individuals or corporate bodies.
- Al Waqf is an independent legal entity (similar to a trust).
- Al Waqf can take ownership over all kinds of assets and rights, including real estate, securities and intellectual property rights.
- The title and possession of the assets subject to Al Waqf are transferred to Al Waqf.
- Al Waqf is managed by Al Nazir (similar to a trustee), the role of which is to represent, administer and maintain Al Waqf. This role can be entrusted to an individual or a licensed legal entity.
- Al Nazir is entitled to invest the assets of Al Waqf, subject to obtaining the approval of the Owner or the competent court.
- Assets subject to Al Waqf cannot be transferred or encumbered by third party rights, except in limited situations to preserve and replace the benefits generated by Al Waqf.
Moreover, the Federal Waqf Law allows the use of Al Waqf structure in family owned companies, provided that it is not used to circumvent applicable laws and regulations (including the rules regulating inheritance). In such case, Al Waqf (the trust entity) can be the registered owner of the shares and the manager of the company can be considered as Al Nazir.
It seems that there are a number of characteristics of Waqf that make it similar to a trust under the common law system. However, a key factor to consider is that Al Waqf, as per the explicit provisions of the Federal Waqf Law, must not be used as a tool to circumvent applicable laws, regulations and public policy or to evade payment of debt.
The executive regulations of the Federal Waqf Law are yet to be issued and should provide clarity on its scope as well as practical application by the relevant Waqf authority.