US Tax Planning in the Middle East – A Case Study

Darlene Hart, USTAXFS founder & CEO Sarl in Switzerland, sat with David Bell, Founder & Director of Private Client Dining (PCD), and Sunita Singh-Dalal, partner at Hourani, a top law firm in Dubai, to discuss the growing demand for US tax planning in the Middle East. Together they explored complex cross-border tax issues impacting wealthy families with US connections in the region. Darlene and Sunita focused on a typical scenario involving ‘Muhammad and Nadia’, UAE Nationals with significant international assets and US-connected family members.

The Scenario

Muhammad and Nadia, aged 75 and 62, are UAE residents with children linked to the US. Their son was born in the US, and their daughter, now living in the US, is married to an American citizen with two young US children. The family’s asset portfolio includes real estate in both the UAE and New York, as well as a $50 million investment portfolio split between US and non-US holdings.

Key Tax and Estate Planning Challenges

1. US Estate Tax Exposure – Assets such as the New York property and US stocks pose a 40% estate tax risk if left in Muhammad’s name.
2. Cross-Border Tax Complexity – The involvement of US citizens or residents complicates estate planning, with strict US tax rules around foreign trusts and corporate ownership.
3. The Role of Foundations – The introduction of UAE foundation laws in 2018 offers new estate planning tools, enabling families to protect and pass on wealth more effectively, provided cross-border tax rules are adhered to.

Proposed Solutions

Darlene and Sanita emphasized the importance of proactive planning. They recommended transferring certain assets, such as the family’s UAE company, into a foundation. However, caution is required with US-based assets to avoid triggering unwanted tax liabilities. Tailored structures, like foreign grantor trusts, can help, but a detailed analysis of family dynamics and asset locations is essential.

For Muhammad and Nadia, the “do-nothing” option is not viable. They must embrace tailored, multi-jurisdictional estate planning to safeguard their wealth for future generations and avoid potential tax traps. Collaborating with US tax experts and regional advisers ensures their family’s wealth is protected and passed on smoothly.

For specific questions and tailored advice, please contact us to speak to a member of our team.

To watch Darlene, Sunita and David discuss the full case study, click here.