Setting Up Of Foundations In UAE
Overview - Foundations
Foundation is a legal structure that provides a mechanism to consolidate family holdings of various assets into a single entity.
Foundation is a legal structure that provides a mechanism to consolidate family holdings of various assets into a single entity.
- A Foundation has no shareholders or members and is governed by the Foundation’s Charter.
- A Council manages the Foundation property and carry out its objects for the purpose or benefit of the beneficiaries.
- A beneficiary can be an individual, corporate entities, a Foundation, or even unnamed at the time of formation.
Why set up a Foundation?
Foundations are a good structure to hold family assets, such as shares in companies, properties, arts, financial investments, and other assets. Holding ownership of all assets under a single top entity is efficient, both operationally and tax wise. It is also cost effective as compared to owning each asset separately. It is one of the most favored tool or structure for smooth succession planning. Having clear wishes and plans set out in the Foundation Charter and By-Laws avoids the common issues that arise upon the demise of the family head.
Setting up of Foundations - Benefits
High Networth Individuals (HNIs) who seek to effectively manage and supervise their wealth and assets under an award winning international financial centre will find foundations useful. Foundations also serve as an alternative to trusts for financial planning and structuring.
Distinct legal entity
A Foundation is a distinct legal entity. However, Foundations are not allowed to conduct any business activity except to the extent of fulfil the purpose of the Foundation.
Robust governance mechanism
Foundation Regulations follow international best practices and set a legislative standard for the Foundation Council. The duties and responsibilities of the Council members are defined in the Foundation Regulations and in the Foundation Charter and By-Laws of each Foundation.
Guardian oversight
In addition to the Foundation’s Council, a Guardian can be appointed with sufficient powers of oversight and correction in relation to the decisions of the Council. Appointment of Guardian is mandatory upon demise of the Founder.
Separation of liability
A Foundation is a distinct legal entity although it controls the assets it owns, it allows separation of liability between Founder and Foundation.
Perpetual existence
Like a company, a Foundation is a perpetual concept, allowing arrangements to continue and therefore providing certainty after the Founder’s demise.
Asset protection
The regulations have robust firewall provisions that assist in protecting the rights of beneficiaries and preserve the Foundation’s assets from bankruptcy claims, claims in the event of divorce and from the effect of forced heirship rules.
Taxation
Foundations can benefit from the favorable tax environment in the UAE with 0% corporate tax and personal income tax rates. In addition, they can avail the benefit from a wide network of Double taxation Treaties.
Privacy
The beneficiaries of a Foundation are kept confidential.
No Beneficial Owner
A Foundation is an “orphan structure” and therefore has no shareholders or members.
Documents required for setting up a Foundation
- Details of Founder, Beneficiaries, Councilor, Guardian
- Copies of Identification documents and evidence of appointment
- Details of registered office address, Details of Company Service Provider or Registered Agent (as per jurisidiction)
- Foundation Charter
Critical Requirements of a Foundation
Founder
A legal or natural person for who’s benefit the Foundation is set-up. A Foundation can be set up without a beneficiary being nominated.
Councilor
A person who manages and administers the assets of the Foundation. A Foundation must have at least 2 council members.
Guardian
A person who has the oversight powers as provided under the Foundation Charter and can take corrective decisions. Appointment of a Guardian is optional but compulsory after the demise of the Founder. A Guardian can be a beneficiary, but a sole beneficiary cannot be appointed as a Guardian.
Beneficiary
A legal or natural person who sets up a Foundation and endows the initial assets. One or more Founders can set up a Foundation. Founder may be a Council member and/ or a beneficiary under the Foundation.
Designee
A legal or natural person to be appointed if the Foundation has not nominated any beneficiary.
Company Service Provider/ Registered Agent
A person who has the oversight powers as provided under the Foundation Charter and can take corrective decisions. A registered agent or a CSP is to be appointed depending on the jurisdiction. Appointment of a Guardian is optional but compulsory after the demise of the Founder. A Guardian can be a beneficiary, but a sole beneficiary cannot be appointed as a Guardian.
How Can We Help?
- Advise on Restructuring of Property, Asset Consolidation in UAE
- Advise on Legacy Planning and Asset Protection Strategies in UAE
Frequently Asked Questions
A Foundation is an independent entity with a legal personality separate from that of its Founder(s) and any other person. A Foundation has the capacity, rights and privileges of a natural person. The Founder bestows assets (real estate, shares in companies etc.) which the Foundation will own in its own name and separately from the personal wealth of the Founder. It is a hybrid structure having characteristics of company and trust.
Foundations can be used for a variety of purposes, including wealth management and preservation, family succession planning, tax planning, asset protection, corporate structuring, and for Public Interest Foundations (excluding charities).
In the UAE, a Foundation can be set up in:
- - Abu Dhabi Global Market (ADGM),
- - Dubai International Finance Centre and
- - Ras Al Khaimah International Corporate Centre (RAKICC).
While ADGM and DIFC follow English Common Law, RAKICC follows British Virgin Island model.
ADGM and DIFC charge USD 200 and RAKICC charges AED 750 for setting up the Foundation with a similar annual renewal fee.
- Foundation Charter
- By-Laws (this includes constitutional and beneficiary information and is a private document)
As these are Foundation constitution, it should be drafted with utmost care.
A Guardian supervises the Foundation Council and ensures that it acts in accordance with the Foundation’s Charter and By-Laws.