Credit Cards

Credit Cards – Boon or a Bane? – Part 2

Author:  Nadeem Syed – Banker
Nadeem Syed

This is second and final part of the series written by Nadeem Syed – our Banking Advisor.The part 1 explained the Background and some key features of a Credit card. This instrument of convenience can make life easy, however, used recklessly, could certainly result in a potential calamity, waiting to happen. Can we avoid it? Read to find out.

 

The temptation

One often talked about disadvantage of a credit card is the risk of overspending. A thing to remember, at the end of the day, the money spent through credit card has to be repaid. A momentary good time today should not become a precursor for a financial crisis tomorrow!

Undeniably, huge advertising budgets on Credit cards marketing by the Credit card issuers fuels the urge to spend. New card features, flashy ads and promotion schemes are very tempting indeed. Ultimately, it’s your money and your pocket that pays up. Cost versus the benefits must always be measured. Ask a financial expert if you are unable to work out the pros-and-cons.

Signs of Distress and Pitfalls to avoid

The following could indicate potential signs of financial trouble.

 

Ideally there should be a healthy movement in the Credit card outstanding balance. This means that the balances should come down to lower levels every few months.

Typically if there is a freeze in the outstanding balance of the credit card,whereby it’snot reducing below atleast 50 to 60 percent of its limit for more than six months, it could be apotential sign of trouble round the corner.

Avoid direct cash withdrawalson Credit card, if possible, as these tend to be expensive and could attract extra charges. With increasing number of vendors, web stores and shops accepting Credit card there is hardly a need to avail a Cash advance facility via a card.

Limit the number of credit cards. In this part of the world there is always enticement of easy credit via ease of availability of fancy credits card with all the frills and thrills. Yet one could always be led into a debt trap. Keep at best not more than two cards. An ATM or a Debit card can always be a wise substitute for a Credit card when going for shopping without hard cash.

It’s also preferable if standing instructions are given to your bank to debit the account every month directly to avoid missing out on credit card payments.

Regular monitoring of your bills would certainly go a long way to avoid getting into a debt difficultly.

Don’t feel shy to ask your banker. Even in today’s sophisticated and automated environment, no one in infallible. Mistakes and errors are possible. It’s your right to ask and clarify.

If due to some misfortune,if a person lands up in Credit Card trouble, there could still be hope and some solutions are possible. It’s best to talk to financials experts with a candid disclosure of the financial position and discuss work-out planfor the monetary obligations.

Ending Note:

Our team has extensive experience in this field with expertise in legal and commercial matters and can advise persons who may be in financial distress due to credit card obligations.

Inheritance Principles for Non-Muslims in UAE

Inheritance Principles for Non-Muslims in the United Arab Emirates (UAE)

by Cecilia Bicca

Legal Background

In the UAE, principles of inheritance and succession are found in Islamic law (also known as Sharia), which is a religious form of law mainly based on the Quran and the Sunna (sayings of the Prophet Mohammed PBUH). Sharia regulates most aspects of the lives of Muslims, such as moral, family, personal status, charity, politics, community life and inheritance, among others.

Though Sharia is in essence not totally codified, in the UAE provisions regarding inheritance – as well as personal status’ matters like marriage, divorce, capacity and tutorship – are compiled in UAE Federal Law No. 28 of 2005 (also known as the Personal Affairs Law). Supplementary provisions may also be found in UAE Federal Law No. 5 of 1985 (also known as the Civil Transactions Law or Civil Code).

The Personal Affairs Law applies to all Muslims, irrespective of being UAE citizens or not. It also applies to all expatriate residents, regardless of their faith, unless they ask for the application of their national law . In line with the Personal Affairs Law, the Civil Code also provides that inheritance shall be governed by the law of the deceased , understood as the law of the deceased’s own country or community at the time of death.

Hence, when the deceased is Muslim, Sharia will mandatorily govern his or her inheritance issues. On the other hand, the law of the deceased – provided it does not contradict with the UAE public order – may apply if he or she is not Muslim.

Importance of Wills for Non-Muslims

The application of a foreign law by the UAE Courts is not automatic: evidence of the election of such foreign law will be obvioulsy required. A will previously signed in front of a Dubai Notary Public, for instance, serves that purpose. It may include assets located in the UAE and abroad, such as bank accounts, companies` shares and vehicles.

Nevertheless, the Civil Code provides that the UAE law is applicable to real estate properties located in the country . Consequently, wills done by non-Muslims at the Notary Public are possibly devoid of proper legal security for real estate owners, who will have to deal with the uncertainty of a local Court’s decision on a probate case.
In any event the existance of a duly notarized will, in addition to the presentation of the relevant legislation (legalized and translated to Arabic) in due course, will facilitate the decision of the UAE Courts with regard to the application of a foreign law. Otherwise, UAE Courts shall generaly apply Sharia law by default.

The DIFC Wills and Probate Registry

In addition to the Notary Public will option, a potentially safer alternative has become more popular in the UAE among non-Muslims expatriates since May 2015: the DIFC Wills and Probate Registry (DIFC WPR).

The DIFC WPR is a wills’ registry for non-Muslims based inside the Dubai International Financial Centre (DIFC), a financial free zone with its own regulations and its own Courts and Dispute Resolution Authority, which are governed by common law as opposed to Sharia or civil law. The DIFC WPR’s wills are valid and enforceable in the UAE, due to the agreements secured by the DIFC with the relevant authorities in the Emirate of Dubai, and more recently, the Emirate of Ras Al Khaimah.

The validity of the DIFC WPR will is regulated by DIFC law thus ensuring testamentary freedom. It covers both movable and immovable assets (real estate, bank accounts, companies’ shares, etc.) and it is applicable to individuals owning assets in Dubai and Ras Al Khaimah. A property will type and a free zone company will type are also available to testators subject to certain conditions.

From a practical standpoint, it is worth noting that the DIFC WPR will is executed only in English and, in case of death of testator, it is enforced by DIFC Courts through a well defined effective probate procedure. In other words, it simply eliminates the possibility of application of Sharia law in non-Muslims probates.

Children guardianship of Non-Muslims

Wills (both Notary and DIFC WPR) can further cover guardianship of minor children habitually living in Dubai in case one or both parents pass away. A temporary guardian can be appointed to immediately take care of the children while the permanent guardian, if abroad, makes the arrangements for the trip. The permanent guardian will be the person responsible for future care of the children until they reach adulthood.

A non-Muslim expatriate would generally appoint his or her spouse as permanent guardian of their children in case of demise. Would one spouse pass away, the other would have full parental authority to make all decisions concerning the minor children while they reside in the UAE.

In the absence of a guardianship clause or a guardianship will in the UAE, a non-Muslim expatriate wife who lost her husband may be faced with challenges to retain guardianship of her minor children, as per Sharia law a male relative of the husband is normally appointed with the task.

Practical Case

The following fictional case is intended to illustrate possible scenarios in case of death of a non-Muslim in the UAE.

Piero is an Italian national married with an Indian national. They are both Christians. They reside in Dubai with their two minor children: a ten year old girl and an eight year old boy. They have bank accounts and an apartment in Dubai. Piero’s parents are alive. He has one brother.

A. Distribution of Piero’s UAE assets if he passes away and leaves a DIFC WPR will

In such case, his inheritance would be governed by the DIFC law which secure testamentary freedom, and all his Dubai assets – including his share in the real estate property – would be distributed as stated in his will,. His minor children’s guardianship would be vested in his wife, as also stated in his will. The respective probate procedure would be conducted in the DIFC Courts.

B. Distribution of Piero’s UAE assets if he passes away and leaves a Notary Public will

In such case, his inheritance would be governed by the law which he elected in his will – i.e. Italian law – and his Dubai movable assets would be distributed as stated in his will. With regard to his real estate property, there is a potential risk that his share would be distributed to his heirs in accordance with the rules of Sharia. His minor children’s guardianship would be vested in his wife, as stated in his will. The respective probate procedure would be conducted in the Dubai Courts.

C. Distribution of Piero’s UAE assets if he passes away without leaving any will

In the event that Piero passes away without leaving a valid will, his inheritance would be governed in accordance with Sharia law, subject to the Sharia scholar’s opinion and final decision of a Dubai Court’s judge. The heirs’ participation in the succession of Piero would likely be the following:

– Wife: 12.5%
– Son: 36.11%
– Daughter: 18.06%
– Father: 16.67%
– Mother: 16.67%

His minor children’s guardianship would be decided at the discretion of the local Court, which will probably favor his brother as guardian of the children.

Conclusion

Undoubtedly a will is an important asset protection and succession planning tool for non-Muslims in the UAE, despite the costs involved. The DIFC WPR will, in particular, has had positive impact both on foreign investors and local authorites seeking foreign direct investment, because a clear and transparent legal environment is now avaiable to investors of all faiths. Non-Muslims investors’s behavior with regard to corporate and real estate structures has changed, since more complex squemes intended to keep direct ownership outside of the country are no longer required. Instead, one can simply head to the DIFC WPR and have piece of mind.

The contents of this article do not substitute a specific legal advice on this particular matter. Please contact a reputed law firm for legal advice. Note that Abdulla Al Suwaidi’s team is regularly providing advice on this field. For further information kindly contact info@awsuwaidi-advocates.com.

 

Cecilia Bicca

by Cecilia Bicca – cecilia@awsuwaidi-advocates.com

Credit Cards

Credit Cards – Boon or a Bane? – Part 1

Author:  Nadeem Syed – Banker
Nadeem Syed

 

This is part 1 of a two part article written by Nadeem Syed- our Advisor on Banking matters. It explains in simple terms working of a Credit card – a modern financial product that affects our daily lives and may practically be considered as a commercial necessity. It explains the working and background and also suggests some useful tips to avoid getting into Credit card trouble!

 

What is a Credit card?

A Credit Card is a plastic card that allows the user to purchase goods and service on Credit (or a loan) with a promise to settle the credit on pre-agreed terms within a pre-agreed time against an approved Credit limit (“Credit card limit”).

 

Cambridge Dictionary defines it as “a small plastic card that can be used as a method of payment, the money being taken from you at a later time.” Period of this credit settlement can vary from few weeks to few months under a standard contract. A typical card would provide a credit settlement option (against a Credit limit) which can range from 1.5% to 100% of the credit amount (usually a minimum of 5% or a flat fee of AED 100 in UAE).

 

Credit Cards are also useful and handy because they allow the users to avoid carrying large amounts of money (banknotes / physical cash) reducing the risk of physical loss of cash.

 

In this digital era of online shopping and other internet based services and utilities, credit cards provide an easy and secure payment method for conducting online transactions/purchases.

 

Interest (card fee in case of Islamic Credit cards) is charged on the outstanding credit amount periodically. In case of any delays in payments extra penalties / interest would be charged and added to the credit card outstanding balance. A Credit card may also carry an annual fee in addition to interest, payable upfront or in installments.

 

Background

The idea of the Credit Cards was introduced in late 19th century by a certain Edward Bellamy, who had written a novel “Looking Backwards”. In it Bellamy referred to people using credit cards as an item to purchase goods. By 1930s Cards were in almost every household of USA. This invention changed the world and soon became an important part in everyone’s life.

 

It also gave birth to idea of a Cashless society! Towards which the world seems to be heading. It provides more convenience but not without a cost and hazards which we will discuss below.

Credit cards in recent years have becoming increasingly sophisticated financial instruments with added features shopping points, airline travel miles, insurance coverage, etc. It’s quite possible that the Credit card of tomorrow is not a “card” any more but rather a chip imbedded in our hand!

 

Difference between Credit and Debit Card

People often get confused between a Debit Card and a Credit Card. In a Debit card, funds are deducted instantly from the user’s bank account upon usage. However, a Credit card offers a Credit facility to the card holder to pay at a later time, fully or in deferred payments over a period of time.

 

Credit Cards – Boon or a bane?

If used prudently, this financial product will bring about benefits for its user by enhancing their life style as well as ease. However, used irresponsibly, it can certainly prove to be a bane that can bring about disastrous consequences such as loss of integrity and often severe penalties including jail term that could result in bankruptcy in extreme cases.

Ending Note:

Our team has extensive experience in this field with expertise in legal and commercial matters and can advise persons who may be in financial distress due to credit card obligations.

 

Authors Profile

 

Nadeem Syed is a seasoned Banker with over 25 years of banking experience, out which 17 years have been with banks in UAE.

 

He has a rich experience in the areas of Corporate, SME &Retail, Investment banking, Risk management, Trade Finance, and Credit strategy.

 

He also specializes in area of Islamic finance and has worked in senior level positions at Emirates Islamic, Dubai Islamic Bank, etc. Currently works as a Consultant and is associated with us as a specialist in Banking and financial matters.

 

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