There are many ways to manage your estate in the UAE, but one of the most effective is to set up a foundation. Foundations can be used by high-net-worth individuals, families, and corporations in the UAE (including locals and ex-pats) to aid with wealth management and preservation, family succession planning, tax planning, asset protection, company structuring, and other difficulties. It provides greater certainty and comfort that the assets will be distributed by the Founder’s wishes, with the Foundation’s life span remaining eternally after the Founder’s death. The Sharia Law of the United Arab Emirates makes no provision for the establishment of a trust or foundation. Creating a foundation, on the other hand, is a tax-advantaged strategy to protect your assets.
A foundation is a separate legal entity that holds assets that are not part of the Founder’s personal property. Unlike a trust, which is a common-law phrase, the Foundation was created in jurisdictions where civil law prevailed. It is similar to a company in the sense that it has its legal personality. A foundation, on the other hand, is an “orphan” entity that does not issue stock or other legal titles. At least one commercial activity that helps one or more beneficiaries is required of a foundation (named or not). The charter and by-laws of a foundation, which together express the Founder’s wishes, govern it. It is governed by Council Members and can be overseen by a Guardian who ensures that the Foundation is run by the wishes of the Founder. A foundation’s assets are owned by the Foundation in its own right.
WHAT IS THE PURPOSE OF A FOUNDATION?
A foundation is a legal entity distinct from the rest of the company. Unlike trust, which is a common-law concept, it is a civil law concept. Apart from the Founder’s riches as a separate legal entity, the Foundation’s founder bestows assets to the Foundation, which it will preserve in its name.
There are no members or stockholders in the Foundation because it is self-owned. The foundation council manages the assets for the benefit of beneficiaries or in support of a cause or purpose by the Foundation’s charter and by-laws.
WHY USE FOUNDATIONS IN THE UNITED ARAB EMIRATES?
Asset Protection can be provided by a foundation holding shares in subsidiary companies, separating legal ownership from usufruct rights. It can also be used for Estate Planning, in which the Founder gives the Foundation title to his assets and the Foundation distributes his money according to his wishes. If you have assets in multiple locations, such as real estate in Dubai or a holding company in Singapore, foundation formation is extremely beneficial.
The following are the primary reasons for the use of foundations:
- Asset management, succession planning, and estate planning are all things that need to be considered.
- Asset protection from forced inheritance regulations, aggressive creditors, and hostile takeover bids;
- Long-term holding structure;
- To contribute to charitable and philanthropic endeavors.
A family-owned corporation usually has one family member at the helm, with several more family members holding key positions and expressing their opinions on how the company is run. To take these family enterprises to the next level in terms of growth, it is frequently necessary to transition from a single-family member to a more organized, professionalized leadership.
In the UAE, establishing a foundation is a simple way for a family to transfer management while preserving control of their business. They can lessen the risk of key people becoming incapacitated or dying unexpectedly by transferring ownership of their company to a foundation and employing competent management. While delegating executive authority to specialists, a properly established foundation allows the family to retain ownership control.
ESTABLISHMENT OF A FOUNDATION IN THE UNITED ARAB EMIRATES
In the United Arab Emirates, a foundation consists of the parties listed below, as well as the relevant legal documents.
A minimum of one (1) founder, either a natural person or a legal entity, is necessary. Once the Foundation is founded, a Founder normally has no additional rights to it, however, these may be incorporated into the By-Laws if necessary.
The Founder must form the Council, which must consist of at least two (2) members, one of whom must be the Founder. The Council’s role is to oversee the Foundation’s operations in the same way as a board of directors would, while adhering to the Foundation’s Charter, By-Laws, and applicable laws.
The Founder chooses a Guardian (which can be a human or a legal entity) to oversee the Council and must make reasonable measures to ensure that it fulfills its responsibilities. The Guardian may be given the authority to accept or reject decisions made by the Council in the By-Laws.
A foundation will almost always hire a Registered Agent (although this is not essential except in RAK ICC), who must be properly licensed by the regime’s governing authority.
All foundations are required to have a registered office, which is normally the Registered Agent’s address, though the administration and location of the Council, Founder, and Guardian can be anywhere.
Documents Governing the Organization: The Constitution and By-Laws of a Foundation are the foundation’s governing papers. We recommend that these be tailored to the goals and interests of the Founder and the Foundation; we may assist with this.
IN DUBAI, THE REQUIREMENTS FOR FORMING A FOUNDATION
A foundation can be founded by individuals or corporations (s). The two fundamental requirements for creation are the presence of initial currency and one or more specified objects (s). Both systems provide for a broad variety of permissible activities. In contrast to the ADGM regime, a DIFC foundation can only be created for charitable purposes. Commercial operations, on the other hand, are prohibited for foundations unless they are incidental or supplementary to their purposes.
The foundations are non-profit organizations that can be formed by following the rules and regulations set forth by the Ministry of Community Development. Social clubs are the most popular non-governmental organizations (NGOs) for a foreign or local business to start. These can be used to deal with social care institutions or club activity groups. Aside from the Community Development Authority’s special license, the Foundation should be founded, activities planned, and an application form filled out.
Please keep in mind that our Dubai attorneys can help you with legal issues as you prepare the paperwork for your future Dubai foundation.
REQUIREMENTS FOR THE CREATION OF TRUST DOCUMENTS REQUIRED FOR THE CREATION OF A TRUST
- Each natural person member of the Foundation must supply the following documents:
- A copy of your passport is required.
- Copies of a recent utility bill (water, electricity, gas, telephone bill, etc.) or a Certificate of Residency issued by City Hall, Consulate, or other official agency are acceptable forms of proof of address.
- The following documents must be submitted by the legal entity:
- A copy of the company’s articles of incorporation, as well as a list of its directors and partners, are included in the paperwork. The Registry has the authority to request a translation or certification of specified documents.
- Copy of Passport: All supervisors and coworkers must submit a copy of their passports.
- A copy of a recent utility bill (water, electricity, gas, telephone bill, etc.) or a Residence Certificate issued by City Hall, Consulate, etc. is required for all managers and associates.
IN THE UNITED ARAB EMIRATES, THE FOUNDATION REGIME, REGISTRATION COSTS, AND FEES
In the United Arab Emirates (the “UAE”), foundations are now offered in the following categories:
The Foundations Law DIFC Law No. 3 of 2018 governs the Dubai International Financial Center (the “DIFC”), whereas the Foundations Regulations 2017 govern the Abu Dhabi Global Market (the “ADGM”), and the RAK ICC Foundations Regulations 2019 govern the RAK ICC.
The DIFC, for starters.
The DIFC regime is the only one that allows a company to establish a foundation. A charitable or non-charitable asset can be held by a DIFC Foundation. Only commercial operations that are necessary, auxiliary, or incidental to the Foundation’s purposes are permitted. While DIFC Foundations are permitted to have a strictly charitable purpose, ADGM is not; so, if the Foundation is established for charitable purposes, a Guardian is required. Arbitration is primarily used as a form of alternative dispute resolution in the DIFC system.
Finally, a DIFC Foundation can issue depository certificates (sometimes referred to as securities) that represent the value of the contributed assets as well as the contributor’s claim to them.
The Foundation’s registration fee, as well as its annual renewal fee, is USD 200. (as of 2022).
The ADGM is second.
The identities of Council Members are kept confidential in the ADGM, but their information is made public in the DIFC (subject to payment of an access fee).
The ADGM Foundation regime is the only one that does not have a continual yearly obligation to file or audit accounts unless the Registrar requires it. Account records must be kept following the other regimes, but they are not required to be filed unless requested specifically.
Without more tailored structuring, the ADGM Foundation cannot be created only for humanitarian or benevolent purposes.
Registration and annual renewal fees are both USD 200. (2022).
- RAK International Corporate Center (ICC) There is no publicly accessible database of foundation information at RAK ICC.
The information held by the Foundation is protected by UAE privacy laws and will not be disclosed unless required by authorized authorities. RAK ICC requires a Registered Agent, while DIFC and ADGM consider it optional.
Fees for RAK ICC are AED 750 for registration and AED 750 for annual renewal (2022). (About USD 200)
WHAT CAN ATTORNEYS AND LEGAL ADVISORS DO FOR YOU?
Our team includes trust, business, and foundation professionals, as well as administrators, attorneys, and accountants, whose abilities and knowledge add value throughout the life cycle of the structure and can help you build and implement solutions that fulfill all legal and regulatory criteria. Individuals and families with ties to one or more jurisdictions can take advantage of our comprehensive Foundation services, which include:
- Foundation formation.
- Assist in the selection of Council members.
- We are keeping statutory records and fulfilling legal obligations.
- Accounting and financial reporting are taken care of.
- Regulatory services for proper cash management.
We ensure that our Foundation service in the UAE complies with the Foreign Account Tax Compliance Act (“FATCA”) and the Common Reporting Standard (“CRS”) regulations.