Foundations in the UAE; A Comprehensive Outlook

December 15, 2022by Mohammed Rahali

Foundations in the UAE; A Comprehensive Outlook

Establishing foundations in the UAE has become one of the main ways and one of the sophisticated tools used in succession planning, wealth and assets protection and legacy planning.  Foundations play a similar role to trusts but differ in the sense that a Foundation has a legal personality. In fact, a foundation is an independent legal entity holding assets in its own right.

A foundation has no shareholders but instead has Founders, Beneficiaries, Board Council, and Guardian. The foundation meets its founder’s wealth protection needs but retains a corporate legal personality. This is where the main advantage in structuring 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 board council, chosen by the founder. References to charters and by-laws may sound complex, but in fact foundations often have a simple structure.

Why Establish a UAE Foundation?

  • Asset protection: UAE Foundations are widely known for their Asset Protection features. As an independent legal entity, UAE foundations separate individuals from the ownership of assets. This provides protection from creditors and government bodies if the founder gets into financial difficulties.
  • International Structuring: At Wincore Advisory Group, we have advised on many structures where the UAE Foundation was used as an integral part of an international structure. For example, a number of DIFC Foundations have been established to act as trustee as the private trustee foundation structure is more palatable than the complexity involved with a typical private trust company structure.
  • UAE Real Estate holding: The UAE Foundations have garnered a lot of attention when it comes to the UAE real estate and have become the succession vehicle of choice for UAE real estate.
  • Tax-optimisation tool: Foundations can hold capital income and certain assets. This is tax-efficient, as they benefit from a favourable tax environment in the UAE; there is 0% personal income tax and access to a wide network of ‘Double Taxation’ treaties. Although a corporation tax of 9% will be introduced in the UAE from 2023 and Foundations which are not trading and are receiving passive income are not expected to be affected by the upcoming corporate tax regime.
  • Charity: 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, and also passed on from generation to generation.

For instance, a client who wants to legally protect their wealth and assets, will ask a seek out Wincore Advisory Group where one of our experts would be on hand to provide assistance – to set up a foundation in his name. The client then becomes the founder, and his spouse and children become the beneficiaries of the foundation. The client as 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 jurisdictions within the UAE where a Foundation can be set up.

The Dubai International Financial Centre (DIFC) – DIFC Foundations

DIFC Foundation Regime is the only regime in the UAE that allows a company to be converted into a foundation. DIFC Foundations can own real estate in Dubai. DIFC foundations can also have exclusively charitable purposes. English Common law is the main reference that the DIFC legal system and courts follow.

Establishing a DIFC foundation requires:

  • Founder(s) – may be individuals or corporates
  • 2 Board council members
  • Guardian (optional but mandatory in the case where the foundation has charitable or specified purposes)
  • Beneficiaries (must be individuals)
  • Registered agent (optional)
  • Registered office

 

The Abu Dhabi Global Market (ADGM) – ADGM Foundations

ADGM Foundations 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 other UAE Foundation regimes, all applications to set up a foundation must be submitted by an ADGM-licensed company service provider (CSP). The legal system and courts follow English common law.

Establishing an ADGM foundation requires:

  • Founder(s) – may be individuals or corporates
  • 2 Board council members
  • Guardian (optional but mandatory in the case where there is no surviving founder)
  • Beneficiaries – may be individuals or corporates
  • Registered agent (optional)
  • Registered office

 

RAK International Corporate Centre (RAK ICC) – RAK ICC Foundations

The RAK ICC Foundation appeals to clients requiring complete anonymity as the only UAE Foundation regime where information is not publicly accessible. Information related to the foundation is only disclosed when required by relevant authorities. Migrating a foundation from overseas is possible and there is perpetual concept, allowing arrangements to remain in place after the founder’s death.

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.

Esatablishing a RAK ICC foundation requires:

  • Founder(s) – may be individuals or corporates
  • 2 Board council members
  • Guardian (optional but mandatory in the case where the foundation has charitable or specified purposes)
  • Beneficiaries (must be individuals)
  • Registered agent
  • Registered office

 

A Comparison Table of the Key Features of UAE Foundations

DIFC Foundation ADGM Foundation RAK ICC Foundation
Board Council Members 2 (minimum) 2 (minimum) 2 (minimum)
Registered Agent Optional but Foundations are required to have a physical presence in DIFC Optional but Foundations are required to have a physical presence in ADGM Mandatory and Foundations are required to have a physical presence in the UAE
Guardian Optional but mandatory in the case where the foundation has charitable or specified purposes Optional but mandatory in the case where there is no surviving founder Optional but mandatory in the case where the foundation has charitable or specified purposes
Real Estate Ownership Permitted for Dubai properties Permitted for Dubai and Abu Dhabi properties Permitted for Dubai properties
Charitable Objects Yes Not permitted under Foundation regulations Yes
Reserved Powers for Founders and/or Guardians Yes Yes Yes
Conversion of a Company to a Foundation Yes No Yes
Lifespan Can continue in perpetuity Can continue in perpetuity Can continue in perpetuity
Arbitration Provisions Yes No Yes
Minimum Capital Requirements No No US$100

 

In recent times, the UAE has seen an enormous uptick in the use of Foundation as an Asset Protection tool, as clients holding assets in the UAE and abroad, turn to the key jurisdictions in the UAE for a flexible structure to be used for private wealth planning. Although, some of the popularity of Foundations may be explained by other factors such as satisfying the increase in demand for effective succession and asset protection structures in the MENA zone, the pandemic also placed an emergent emphasis on families to structure and plan for the succession of their wealth. At Wincore Advisory Group, we believe that the establishment of UAE Foundations will continue to grow as they compete alongside other popular structures, such as Trusts.

 

How can Wincore Advisory Group Help

Wincore Advisory Group is a multi-disciplinary aggregate of tax planning, corporate services, corporate finance and wealth structuring advisory services provider. our goal and commitment is to provide high quality pragmatic, confidential, flexible and efficient solutions to address our clientele’s specific needs in the areas of Wealth Planning, Wealth & Asset Protection, inter-generational legacy planning and family governance.

If you wish to discuss the many benefits of the UAE Foundations or any other legal entity, please feel free to contact us.

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Mohammed Rahali

Managing Partner

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