Setting Up a Foundation in the UAE
“Reliable structure needs a strong foundation and strong foundation requires investment” ― Guru Z.S. Gill
UAE Foundations are an integral part of the country’s wealth management system. It is an independent legal entity. Foundations are usually created to protect the desires of the Founder being an individual or corporate body. When a foundation is established by the Founder their assets are transferred and the legal title will get transferred to the Foundation. Foundations are available in the UAE in its free zones like DIFC, ADGM, and RAK ICC. A foundation has a council that manages the founder’s assets as per the jurisdiction and supports the primary cause of the founder’s benefit. Foundations are governed by their Charter and By-Laws. The Charter is publicly available whereas the By-Laws are strictly private. Powers can be drafted in the By-Laws to control the foundation in favor of the Founder.
The Foundations across the United Arab Emirates free zones are governed by the following laws :
- The Dubai International Financial Centre (DIFC) is governed by the Foundations Law DIFC Law No. 3 of 2018,
- The Abu Dhabi Global Market (ADGM) is governed under the Foundations Regulations 2017
- The RAK International Corporate Centre (RAK ICC) follows the RAK ICC Foundations Regulations 2019.
Formation of a Foundation
The following components are required to establish a Foundation.
A minimum of one founder is required. A founder can be an individual or legal entity. After the establishment of a Foundation, the Founder has no rights toward the Foundation unless it is drafted into the By-Laws.
Council is shaped by the Founder. The Council must contain at least two members including the Founder. The Council should conduct the affairs of the Foundation in accordance with its Charter and By-Laws.
The Guardian can be both an individual or a legal entity. Guardian is appointed by the Founder to supervise the Council. It must take reasonable steps to ensure that the Council carries out its functions. The power vested on the Guardian should be mentioned in the By-Laws. The action of the guardian is subject to the decision of the Council.
- Registered Agent
A foundation will have an appointed Registered Agent, who should be properly licensed by the regulatory body in the regime.
The beneficiaries are appointed by the Founder. They can be an individual, groups, or an entity.
- Registered Office Presence
All Foundations must maintain a registered office. The administration and location of the Council, Founder and Guardian need not be same as the registered office.
- Governing Documents
The constitutional documents of a Foundation contain its Charter and By-Laws.
Types of foundations in Dubai
There are several types of foundations that can be established in Dubai by both foreign or local companies and individuals. A Dubai foundation will obtain one of the following statuses
- Social club
The most spread type of foundation in Dubai is the social club. It is registered with the Community Development Authority (CDA). For each type of foundation a special license should be obtained from the CDA.
Key Features of foundation
- Independent Legal Personality
Foundation is capable to hold the assets of the Founder in the name of the Foundation.
Foundations in the UAE can get benefit from a favorable tax environment. That is of a 0% corporate tax rate, a 0% personal income tax.
Foundations are permitted to own all classes of UAE assets including property in ADGM, DIFC, and RAK ICC.
The beneficiaries of a foundation will be kept confidential.
In addition to the Council, a Guardian is appointed with sufficient powers in relation to the decisions of the Council.
The Council can be placed everywhere in the world.
Foundations can be migrated to the ADGM, DIFC, or RAK ICC regimes.
Foundation can be established for an infinite lifespan or for a limited time at the option of the Founder based on the goals to continue in perpetuity.
- No Beneficial Owner
A Foundation is a self-owned entity and therefore has no shareholders or members.
Can be individuals, corporate entities, or even unnamed at the time of formation.
Differences, Registration & Renewal Fees
The DIFC regime is the only regime that allows a company to be morphed into a Foundation. DIFC Foundations are accredited to have an exclusively charitable purpose. The DIFC regime specifically provides for arbitration. A DIFC Foundation is can issue depository certificates. Registration Fee or Annual Renewal Fee (as of 2021) - USD 200.
The identity of the Council Members is kept confidential in the ADGM but in the DIFC their information is publicly available subject to payment of a prescribed fee.
The ADGM Foundation regime does not have an ongoing annual requirement to file audit accounts unless requested by the Registrar.
ADGM Foundations cannot be hooked up for solely philanthropic or charitable purposes. Registration Fee or Annual Renewal Fee (as of 2021) - USD 200.
The RAK ICC
RAK ICC does not maintain a publicly accessible register in relation to a Foundation. Information related to the Foundation is under the privacy laws in the UAE and that information will not be disclosed unless required by the relevant authorities. In RAK ICC a Registered agent is a mandatory requirement. Registration Fee or Annual Renewal (fee as of 2021): AED 750 (approximately USD 200).
Advantages of Foundations
Foundations are flexible and can be used for a variety of purposes.
Most commonly Foundations are associated with wealth management, family succession planning, inter-generational continuity, and asset protection. Foundations can be used for a lot of purposes a few of them are mentioned below:
- Holding of Investments
- Asset Protection
- Property Ownership
- Charitable or Philanthropic Purposes
- Business Growth
- Employment share scheme
Conclusively, Foundations are a form of a hybrid entity. A Foundation is established for the beneficial purpose of the Founder, yet it is retained as a corporate level of independent legal personality. With the benefit of the independent legal personality, Foundations offer practical and flexible structures for vast purposes including private wealth management and preservation, succession planning, tax planning, charitable institutions, asset protection, corporate structuring, and creditor protection.