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Establishing UAE Foundations for Wealth Management, Succession Planning, and Philanthropy 


Establishing UAE Foundations for Wealth Management, Succession Planning, and Philanthropy 

An independent legal entity, a foundation allows wealthy families and high-net-worth individuals (HNWIs) to segregate their personal and commercial wealth. It is a long-term holding structure used for asset structuring, succession and estate planning, and philanthropic purposes. Foundations, governed by council members and a guardian, are responsible for managing activities, allocating resources, and ensuring compliance with legal requirements and the founder's intentions. The establishment of UAE Foundations in the Abu Dhabi Global Market (ADGM), Dubai International Financial Centre (DIFC), and Ras Al Khaimah International Corporate Centre (RAKICC) has facilitated their use for various purposes, including family business succession, asset consolidation, real estate ownership, philanthropy, employee incentive schemes, and co-investment. It allows the inclusion of all kinds of UAE & worldwide assets and is enforceable once the assets are moved to the foundation. 


A foundation, often referred to as a “self-owned entity” or “orphan structure”, operates without shareholders or members, thereby creating a clear separation between the founder and the Foundation's assets. Unlike private companies, where individual shareholders personally hold shares and are exposed to third-party arrangements, debts, and potential probate or estate planning complexities, Foundations are typically established with a non-profit status. Their primary objective is not to generate profit for owners or founders but to utilize resources to achieve specified goals.

 

The legal requirements for foundations vary depending on the jurisdiction in which they are established and may include obligations such as filing annual reports, maintaining accurate records, and adhering to specific financial and operational standards. In ADGM and DIFC, foundations can be established under common law, providing investors with a well-defined legal framework that enhances certainty and predictability in legal disputes, thereby allowing for greater flexibility in structuring. RAKICC offers the option to select common law jurisdictions, enabling entities to choose between the courts of ADGM or DIFC. 


Administration and Governance 


The administration of a foundation is managed by council members chosen by the founder. These members are responsible for overseeing property management and executing the foundation's objectives. The foundation's assets, selected by the founder, adhere to the foundation's Charter and By-laws, serving to benefit specific beneficiaries or support particular causes. 


Legal Characteristics 


Foundations can operate indefinitely without a fixed or specified duration for its establishment. Additionally, a foundation does not issue shares and has no shareholders, only council members, and beneficiaries. Foundations aim to safeguard wealth and ensure legacy continuity for future generations. 


A foundation's purposes are varied, including the management and preservation of private wealth, succession planning, strategic tax planning, charitable activities, asset protection, corporate structuring, and creditor protection. These aspects are outlined in the foundation's constitution, comprising the Charter, which establishes the foundation, and the By-laws, which detail the internal governance framework and any additional powers granted to the founder and council members. 


Composition and Establishment 


A foundation can be established by a founder, who may be a natural person or a legal entity. Upon the establishment of the foundation, the founder typically forfeits any rights to the foundation or its property unless otherwise specified in the By-laws. The foundation must have a council with at least two members to manage its affairs in accordance with its Charter and By-laws. The founder is permitted to serve as a council member. 


While the above-mentioned foundations share some similarities, there are notable differences in their governance requirements. For instance, the DIFC mandates that foundations have at least one natural person as a founder or council member, whereas RAKICC requires a minimum of two. Both ADGM and RAKICC permit corporate entities to serve as founders and council members. 


Moreover, the ADGM states that at least two council members must reside in the UAE. This requirement ensures that the foundation maintains a significant connection to the UAE and can form meaningful partnerships with local organizations. In contrast, the DIFC does not impose a residency requirement for council members, recognizing that the most qualified individuals may not reside in the UAE.  


Additionally, a guardian, either an individual or a legal entity, must be appointed by the founder. The guardian oversees the council and ensures it fulfills its functions properly. However, the appointment of a guardian is not always mandatory. In DIFC, if a foundation has a charitable or specified non-charitable object, it must have a guardian for that object. The founder cannot serve as the guardian, and the appointment of a person as a council member is void if that person is also a guardian. Powers may be reserved to the guardian in the By-laws to approve or reject council actions. 


Further, each foundation must have a registered agent, licensed by the relevant regulatory body, who acts as the point of contact for the foundation. The registered agent is responsible for maintaining the foundation's records and facilitating communication with the regulatory authorities. 

The basic structure of the foundations are: 

 

Establishing UAE Foundations for Wealth Management, Succession Planning, and Philanthropy 

  Advantages of Establishing a Foundation 


  • Foundations are distinct legal entities, separate from their founders and other individuals or entities but is restricted from engaging in business activities beyond fulfilling its designated purpose. They can hold assets in their own name, ensuring the separation of legal and beneficial ownership. 

  • Foundations serves as a wealth fortress, providing protection from personal liabilities and external claims from third parties seeking to extort monetary benefits or settlements from the founder and their family. 


  • Foundations such as DIFC typically feature a well-defined governance structure that dictates their operations, decision-making processes, and asset management. This ensures transparency, accountability, and adherence to the foundation's objectives. As vehicles for managing and preserving wealth, foundations enable individuals to structure and safeguard their assets, providing a robust framework for long-term wealth management strategies. 


  • Assets held within a foundation such as DIFC may be protected from creditors and legal claims, including those arising from divorce, thus contributing to shielding them from certain financial risks. In the UAE, Sharia law dictates the distribution of an individual's estate among heirs. However, a foundation can be structured to mitigate the impact of these rules, offering a level of control over the distribution of assets. 


  • Foundations can own a wide range of assets, including real estate, in the UAE's free zones. This flexibility allows for the structuring of diverse investment portfolios. 


  • Foundations in the UAE benefit from a favorable tax environment, with a 0% corporate tax rate and a 0% personal income tax. This makes them an attractive option for wealth management and succession planning.


  • Beneficiaries remain confidential, enabling discreet management of family wealth. 


  • Foundations in the UAE extend beyond the founder's lifetime, perpetuating their impact indefinitely. 


  • Beneficiaries can be individuals, corporate entities, another foundation, or unspecified at the time of establishment. 


  • Foundations originating from abroad can be transferred to the regulatory frameworks of ADGM, DIFC, or RAKICC. 

Recent Amendment to the Foundations 


In DIFC Law Nos. 3 and 4 of 2018, recent amendments introduced, enhance asset protection mechanisms and fortify DIFC's status as a premier wealth management hub. These changes cater to the needs of affluent individuals and family businesses, emphasizing asset protection and privacy. Key updates include additional safeguards concerning prior transactions by founders transferring property to a foundation. Creditors must now prove that the founder intended to defraud them and that the transfer rendered the founder insolvent. The property transfer will not be invalidated, and the foundation will only be liable to settle the creditor's claim to the extent of the interest previously held by the founder.  


A three-year statute of limitations has been introduced for actions or proceedings related to a foundation or a property transfer to a Foundation. It also reinforces the supremacy of DIFC laws by prohibiting the enforcement of foreign judgments inconsistent with DIFC provisions, creating a barrier for creditors holding foreign judgments. New duress provisions mandate that a foundation must cease acting if a foreign judgment is made against it, preventing Council Members from exercising powers affecting the Foundation's management and property.  


Additionally, the role of registered agents is expanded, allowing them to fulfill compliance duties on behalf of a foundation. The amendments also permit the conversion of a DIFC foundation into a company, enhancing the utility and adaptability of DIFC fiduciary structures in wealth management planning. 


Comparison of Key Features of the Foundations 

Feature 

DIFC 

ADGM 

RAKICC 

Legal Framework 

DIFC Foundations Law No. 3 of 2018 

ADGM Foundations Regulations 2017 

RAK ICC Foundations Regulations 2019 

Governance Requirements 

Foundations are required to have a minimum of two Council members, and while the appointment of a Registered Agent is optional, a physical presence in the DIFC is obligatory. Additionally, the Guardian is an optional role in DIFC, but it becomes mandatory if the Foundation has charitable purposes. 

A Foundation must have a minimum of two Council members. While the appointment of a Registered Agent is optional, a physical presence in the ADGM is compulsory. The role of the Guardian is also optional in ADGM but becomes mandatory in cases where there is no surviving Founder 

Foundations must maintain a minimum of two Council members. Here, having a Registered Agent is mandatory, and the Foundation is required to uphold a physical presence in the UAE. The Guardian role, although optional, becomes mandatory when the Foundation is established for charitable purposes. 

Use of Foundation Assets 

Foundations assets be used for purposes that are not strictly charitable, as long as they are consistent with the Foundation’s objects 

Foundations assets be used for purposes that are not strictly charitable, as long as they are consistent with the Foundation’s objects 

Assets can be used for a variety of purposes as long as they are outlined in its charter or founding documents and consistent with the jurisdictions governing laws and regulations 

Council Members 

Council member identities are publicly available 

Council member identities are kept confidential 

Council member identities are kept confidential 

Reporting 

Annual audit accounts must be filed 

No ongoing annual audit account filing requirement unless requested by the Registrar 

No specific reporting requirements mentioned 

Registered Office 

Must maintain a physical registered office address 

Virtual office addresses are permitted 

Virtual office addresses are permitted 

Migration 

Foundations can be migrated to other free zones 

Foundations can be migrated to other free zones 

Foundations can be migrated to other free zones 

Taxation 

0% corporate tax and 0% personal income tax 

0% corporate tax and 0% personal income tax 

0% corporate tax and 0% personal income tax 

Ownership of UAE Real Estate 

Foundations can own UAE real estate 

Foundations can own UAE real estate 

Foundations can own UAE real estate 

Registration/ Renewal fees 

Registration Fee or Annual Renewal Fee: USD 200 

Registration Fee or Annual Renewal Fee: USD 200 

Registration Fee or Annual Renewal Fee: USD 200 

 

By:  Sumit Kochar, Managing Partner, Dolce Vita Advisors

 

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