What to know about setting up a foundation in the UAE

Foundations play a similar role to trusts but are very different legal entities. We explain the UAE’s three different foundation regimes

Setting up a foundation in the UAE has become one of the main ways to restructure wealth in the country.

Foundations often play a similar role to trusts, especially when it comes to holding and protecting assets and legacy planning. But they have very different legal structures.

Most importantly, a foundation is an independent legal entity holding assets in its own right. The foundation meets its founder’s wealth protection needs but retains a corporate legal personality. This is where its advantage lies.

Ownership of assets is not transferred to a trustee. Instead, the foundation is governed by rules set out in a charter and by-laws. These are overseen by a council, chosen by the founder.

We have seen a rise in the use of foundations as clients holding assets in the UAE look for a flexible structure for private wealth planning, based on civil law.

Still, foundations are a relatively new financial vehicle in the country and, despite obvious advantages, some hesitate to use them.

Here we explain the benefits of foundations, the differences between UAE’s three foundation regimes and the practicalities of establishing and running a foundation.

Why set up a foundation in the UAE?

References to charters and by-laws may sound complex, but in fact foundations often have a simple structure.

Usually, a client who wants to preserve wealth will ask a lawyer – or corporate service provider – to set up a foundation in his name. The client becomes the founder, and his wife and children are beneficiaries of the foundation. The founder can then sit on the council of members, similar to a board of directors, along with at least one other natural person or legal entity. Checks and balances are provided by a guardian (optional), who controls the actions of the council and offers protection for the founder’s wishes.

There are a number of reasons for someone holding assets in the UAE to set up a foundation:

• Asset protection: As an independent legal entity, foundations separate individuals from the ownership of assets. This provides protection from creditors and government bodies if the founder gets into financial difficulties.
• Employee schemes: Foundations can manage employee pension and retirement plans, as well as company share schemes.
• Tax-efficient holdings: Foundations can hold capital income and certain assets. This is tax-efficient, as they are not subject to personal or corporate taxation.
• Philanthropy: Founders can set up by-laws to ensure assets are used for charitable purposes.
• Wealth structuring and inter-generational legacy planning: By-laws can be created to establish how wealth is distributed from one family member to another.

The differences between foundation regimes in the UAE

In the UAE, foundations can be established under three regimes:

• The Dubai International Financial Centre (DIFC)
• The Abu Dhabi Global Market (ADGM)
• The RAK International Corporate Centre (RAK ICC)

While largely similar, each has slightly different rules and regulations.

The seat of a foundation in the UAE depends on the location of the asset to be protected. That’s especially true with property.

Sometimes, clients may choose one regime over the other on the basis of a particular need. Fees and service levels also differ between the three.

All three regimes benefit from the UAE’s political stability and enjoy legal systems largely based on English law, although there are small variations between them. Corporate tax is 0% in all three. All offer flexibility and access to a comprehensive network of tax treaties.

The Dubai International Financial Centre (DIFC)

DIFC is the only regime in the UAE that allows a company to be converted into a foundation. DIFC foundations can also have exclusively charitable purposes, which is not the case in the Abu Dhabi Global Market (ADGM).

Foundations can own real estate in Dubai.

While the legal system and courts follow a common law framework, there are specific civil and commercial laws. English law is the main reference in case of ambiguity.

Setting up a DIFC foundation requires:

• one or more founders, who may be either individuals or legal entities
• at least two council members
• a mandatory guardian if the foundation has charitable or specified purposes
• beneficiaries, who must be individuals

Having a registered agent is optional. Foundations must maintain a registered office in DIFC at all times.

The Abu Dhabi Global Market (ADGM)

Foundations here must maintain accounting records but are not required to file with the Registrar. They can own real estate in Abu Dhabi and also benefit from private arbitration of disputes.

Unlike in the other regimes, all applications to set up a foundation must be submitted by an ADGM-licensed company service provider (CSP), whose role includes managing incorporation and continuing statutory filing requirements. Intertrust Group holds the necessary licence to fulfil these tasks.

The legal system and courts follow common law. The civil and commercial laws are broadly based on the laws of England and Wales, which apply directly.

Setting up an ADGM foundation requires:

• one or more founders, who may be individuals or legal entities
• at least two council members
• a mandatory guardian if there is no surviving founder
• beneficiaries, who may be individuals or legal entities

Having a registered agent is optional.

Foundations must maintain a registered office in ADGM.

RAK International Corporate Centre (RAK ICC)

RAK ICC appeals to clients requiring complete anonymity as the only regime where information is not publicly accessible. Information related to the foundation is only disclosed when required by relevant authorities.

Certain entities can own properties in Dubai. There is no requirement to file or audit accounts or tax returns. Migrating a foundation from overseas is possible and there is perpetual concept, allowing arrangements to remain in place after the founder’s death.

And, of course, all the regimes benefit from their strategic location in the Middle East near emerging high-growth markets.

As a result, clients may choose one regime over the other based on a desire for anonymity, or the relative complexity of administrative requirements.

The RAK ICC  legal system follows common law with access to ADGM and DIFC courts. Its civil and commercial laws are broadly based on the laws of England and Wales, which apply directly.

Setting up a RAK ICC foundation requires:

• one founder, who may be an individual or a legal entity
• at least two council members
• a mandatory guardian if the foundation has charitable or specified purposes

Foundations must appoint a registered agent and must maintain a registered office in the UAE.

How Intertrust Group can help with foundations in the UAE

• Our experts have many years’ experience in setting up and managing foundation structures. Intertrust Group provides accounting and bookkeeping services for foundations in the UAE and can also act as a council member.
• Intertrust Group provides a truly personalised private wealth service to help clients structure and protect their assets successfully.
• Intertrust Group is a publicly listed company with 70 years’ experience providing world-class wealth management services to clients around the world.