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What is a Foundation?

A foundation refers to a special structure created under the (DIFC Law No. 3 of 2018) for the protection of various kinds of assets.
It is an independent legal entity holding those assets in its own right, separate from the personal wealth of the founder. The assets held by a foundation are managed by a council that the founder appoints and each foundation is governed by its own set of rules defined in its charter and by-laws.

Quick Facts:

  • Although used interchangeably, a foundation is fairly different in structure than a trust.
  • A foundation can have more than one founder.
  • A corporate structure can also be a founder.
  • There must be a minimum of two council members appointed.
  • The appointment of a guardian is optional unless there is no surviving founder, or the foundation has any specified non-charitable objective.
  • Initial setup fees range from $200 to $500, with additional changes or modifications costing $100 to $500 after the foundation is established.

 

The Purpose and Advantages of a Foundation:

The flexibility of a foundation is the key to all of its advantages. Based on how you set up a foundation, the following are some major benefits it can offer:

  • Inheritance or Succession Planning – A foundation allows the creation of bylaws to address how wealth is distributed or passed on to the heirs (called Qualified Recipients).
  • Legal protection of Wealth and Assets– Since the assets no longer belong to the individual, they are protected if the founder is taken to court or has other financial problems. Foreign laws have no impact on the assets held by the foundation.
  • Tax Advantages – A foundation’s wealth and assets are not subject to personal or corporate taxation.
  • Charitable Purposes – The founders can create bylaws that allow the assets of the foundation to be used for charitable purposes.
  • Managing Employee Plans – Companies can use a foundation to handle employee-based schemes like pensions and retirement plans.

 

UAE’s Requirements For Registering A Foundation:

Foundations must be registered with a local authority in the UAE. This authority may vary depending on the city or region of choice. However, the following requirements remain the same:

  • Application – Creating and registering a foundation is relatively simple as long as you meet all of the requirements and submit all of the required documents as outlined in the Foundations Law. There is no fee for applying. The only monetary requirement is a USD 100 (minimum) initial capital.
  • Founding Documents – The foundation must have a drafted charter at the time of registration, which serves as its constitution. It must outline the founders’ names, objectives, initial investments, and duration. By-laws are optional, but they can provide additional rules for the foundation to follow.
  • Assign Key Roles – Individuals must be named to key roles in a foundation, such as the governing council (minimum of two members), guardian, and registered agent. The council is responsible for achieving the foundation objectives. A council guardian ensures that all rules and bylaws are followed. A registered agent is a position that serves as the founder’s representative.

How can HA Group help?

The Foundations Law, signed by the UAE in March of 2018, is a lengthy document filled with legal jargon that may be intimidating for most people. HA Group is well-versed in UAE government regulations and business practices.  We can guide you through the process of establishing a UAE-based foundation, help you understand the key differences between various available jurisdictions, and make the incorporation process seamless for you.
Feel free to contact us if you need help registering a foundation in the UAE, or with any other company setup!

WHEN IS IT USED?

Foundations are being used for a variety of reasons, chief among which are:

  • Wealth structuring, succession and estate planning
  • Asset protection (forced heirship rules, creditors and hostile takeovers)
  • Long-term holding structure for businesses
  • Charity and/or philanthropic purposes

WHAT IS A FOUNDATION?

  • A foundation is an independent legal entity that holds assets separately from the founder’s personal wealth
  • It is similar to a company in that it has its own legal personality. However, it does not issue shares or any other legal title of ownership – it is an “orphan” structure.
  • A foundation is governed by its charter and by-laws, which together reflect the desires of the founder. It is managed by a foundation council and may be supervised by a guardian.

WHAT IS THE FOUNDER’S ROLE IN THE FOUNDATION?

  • Aside from founding the Foundation, the Founder’s role is to determine how the Foundation shall be managed and controlled, who shall be the Foundation’s members (i.e. Council Members, Beneficiaries, Guardian), and how the proceeds of the Foundation’s assets – or the assets themselves – shall be allocated/distributed.
  • The Founder has the freedom to specify the conditions, restrictions and rules of the Foundation in the Foundation’s constitutive documents – i.e. the Charter and the By-Laws – as well as through Letter of Wishes.
  • Whenever a Foundation has more than one Founder, the co-Founders shall, unless agreed otherwise, take these decisions jointly.
  • A Founder can also be a corporate structure.

COUNCIL MEMBERS

  • The Foundation Council must be composed of a least 2 Council Members, initially appointed by the Founder.
  • The Council Members’ role is to administrate and manage the assets of the Foundation in accordance with the Foundation’s constitutive documents – the Charter and Bylaws.
  • Similar to a Board of Directors in a company, the Council Members do not hold personal title to the Foundation’s assets and, therefore, no personal liability towards the Foundation, save for negligence for any breach of that foundation’s obligations or fraud.

BENEFICIARIES

  • A beneficiary is a person (individual or corporate) who benefits from the Foundation, e.g. its assets, proceeds generated therefrom. The Founder decides on the designation and hierarchy of beneficiary/ies, his/her/their rights and entitlements.

GUARDIAN

  • The appointment of a guardian is voluntary as long as there is a surviving founder and the foundation does not have strictly a charitable object. If there is no surviving founder or if the foundation has one or a specified non-charitable object, it must appoint a Guardian in relation to that object.

REGIMES

  • DIFC
  • ADGM
  • RAK ICC

CONCLUSION

Compatible with all asset classes (Dubai Real estate, shares, portfolios), foundations enable both Muslims and non-Muslims to consolidate and protect their assets against attacks as well as exclude these assets from probate.

PERSONAL VS FOUNDATION

COMPANY VS FOUNDATION

REAL ESTATE AND FOUNDATION

  • Ever since the Dubai real estate market opened up to foreign ownership, investors have been looking for the best structure to ring-fence their assets. The search is over.

FOUNDATION AND REAL ESTATE, COMPATIBLE?

  • Yes, definitely! For the past year, we have been registering Dubai properties directly and indirectly with Foundations.
  • An important observation though is that so far, the DLD is only accepting DIFC Foundations as direct or indirect owner of Dubai properties. And the same happens with the Land Department in Abu Dhabi, which currently only accepts ADGM Foundations as owner of Abu Dhabi properties.

TRANSFER/REGISTRATION FEES

  • The standard transfer fees applicable by the DLD is 4% of the market value of the property. This rule however has an exception: when the property transfer is made among direct family members (spouse, parents, or children) or between the same Beneficial Owner, the transfer fee is reduced to 0.125% of the market value of the property.

WHAT IS LEGACY PLANNING?

Legacy planning is the financial and governance strategy that prepares you to bequeath your wealth and life achievements to the generations to come; subject to personal priorities the main objectives of legacy planning are:

  • Asset protection;
  • Asset consolidation;
  • Wealth management;
  • Family unity;
  • Business continuity;
  • Governance; and
  • Tax efficiency
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