How to set up a foundation in the UAE
A Guide to Setting Up a Foundation in the UAE
The United Arab Emirates (UAE) is one of the leading financial centres in the Middle East. Much of this success can be attributed to the nation's efforts to create laws and a favourable regulatory environment which incentivises individuals and companies to do business there.
In March of 2018, the UAE signed the Foundations Law (formally known as DIFC Law No. 3 of 2018) which allows for the creation of a special structure to protect assets including family businesses, real estate, land, stocks and shares and other assets such as art and intellectual property. Using a foundation isn’t right for every situation, so it's important to understand the main benefits and differences between a foundation and other similar structures.
The Difference Between a Foundation and a Trust
The terms foundation and trust are often used interchangeably. Both foundations and trusts are used to help provide asset protection. However, they are very different structures. Which option people choose will depend on their personal circumstances or financial objectives.
A trust is an arrangement by which the legal ownership of assets is transferred to a trustee. This trustee then manages the assets on behalf of the beneficiaries of the trust.
Unlike a trust, a foundation is an independent legal entity that holds the assets in its own right. The assets are managed by a council that is appointed by the founder. Each foundation has its own set of rules laid out in a charter and by-laws.
Benefits and Purpose of a Foundation
One of the key benefits of establishing a foundation is its flexibility. Depending on how the foundation is set up, there are numerous options that provide advantages such as tax savings, legal protection, and the ability to pass wealth on to heirs.
- Succession Planning or Inheritance - The foundation can establish by-laws that address how wealth is distributed or transferred from one family member to another (called Qualified Recipients).
- Wealth and Asset Protection - Because assets no longer belong to the individual, they are safeguarded in the event that the founder is sued or encounters other financial difficulties. The assets held within the foundation are also free from interference from foreign laws.
- Tax Benefits - Wealth and assets held within a foundation are not subject to personal or corporate taxation.
- Charitable or Philanthropic Purposes - The founders can establish by-laws that allow the foundation assets to be used for charitable purposes.
- Employee Schemes - Corporations can use a foundation to manage employee-based programs such as pension or retirement plans.
Requirements for Registering a Foundation in the UAE
In the UAE, foundations are registered through a local authority. This authority varies based on the city or region of the country.
- Application - Registration and incorporation of a foundation is relatively straightforward as long as you meet all the requirements and submit the documentation outlined in the Foundations Law. There is no fee associated with the application. The only financial requirement is the minimum initial capital of $100 USD.
- Founding Documents - At the time of registration, the foundation must have a drafted charter which serves as the constitutional document and outlines the name of the founders, objectives, initial investments, and duration of the foundation. By-laws are optional but can provide additional rules that are used to govern the foundation.
- Key Roles - A foundation also requires individuals to be named to key roles such as the governing council (minimum of two members), guardian, and registered agent. The council is responsible for executing the foundation objectives. A guardian ensures that the council is following all rules and by-laws. A registered agent is an optional position that performs duties on behalf of the founder.
Initial setup fees range from $200 to $500 USD, and changes or modifications made after the foundation is established will cost $100 to $500 USD. These changes include fees associated with some activities such as filing amendments to the charter or adding/removing councillors or guardians. There is an annual renewal requirement in order to ensure the foundation licence is correctly maintained.
How can PRO Partner Group help?
The Foundations Law is a lengthy document with legal terminology which could be overwhelming for most people. PRO Partner Group (PPG) has in depth knowledge of government regulations and business standards in the UAE, and throughout the Middle East. We can advise you on the process of setting up a UAE-based foundation, the key differences between the different available jurisdictions and we can guide you through the incorporation process.
If you need assistance with any issues pertaining to the registration of a foundation in the UAE, or for any other related company setup, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or KSA, then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at firstname.lastname@example.org or complete the contact form below and we will be delighted to assist you.