A UAE Foundation is a distinct legal entity that allows individuals or families to manage assets, preserve wealth, and plan for long-term succession. Unlike companies, foundations do not have shareholders, and unlike trusts, they have a separate legal personality. This makes them highly flexible and secure for managing personal, family, or charitable assets.
Setting up a foundation in Dubai or elsewhere in the UAE provides several advantages. These include asset protection, succession planning, and structured wealth management for future generations. Foundations also allow for organized decision-making while keeping control in the hands of the founder or appointed council.
The UAE offers multiple jurisdictions for establishing a foundation, including DIFC, ADGM, and RAK ICC. Each jurisdiction has its own legal framework, registration requirements, and advantages, allowing founders to choose the one that best fits their objectives.
Legal Framework Governing Foundations in Dubai
Foundations in Dubai operate under specific legal frameworks designed to protect assets and ensure proper governance.
In the DIFC, foundations are governed by Foundations Law No. 3 of 2018. This law gives the foundation its own legal identity, allowing it to hold assets, enter into contracts, and make decisions independently. It also defines the roles of the founder, council, and guardian to ensure proper oversight.
Dubai has also introduced Law No. 17 of 2022, which focuses on endowment and minors’ trust foundations. This law provides specific rules for charitable foundations and foundations that manage assets for minors, emphasizing compliance, asset protection, and proper management of entrusted funds.
Different jurisdictions have slight variations in rules and governance. DIFC focuses on financial and corporate governance standards, ADGM aligns closely with international legal practices, and RAK ICC offers flexibility with strong asset protection measures. Understanding these differences is crucial for setting up a foundation effectively.
Core Legal Requirements to Establish a UAE Foundation
1. Founder Requirements
A UAE foundation must have at least one founder, who can be an individual or a corporate entity. The founder may retain certain powers, such as approving key decisions or amending the foundation’s charter and bylaws.
2. Initial Capital / Endowment
Founders must contribute an initial endowment, which can include cash, property, shares, or other assets. This endowment becomes the property of the foundation and is used to achieve its objectives.
3. Constitutive Documents
To establish a foundation, the following documents are required:
- Foundation Charter: Defines the purpose, objectives, and structure of the foundation.
- Bylaws: Establish internal governance rules, including council responsibilities and decision-making processes.
- Founder’s Declaration: Confirms the founder’s contributions and powers. A register of council members and beneficiaries is also maintained.
4. Governing Bodies
- Foundation Council: Manages the foundation’s assets and operations. The number of council members depends on the jurisdiction and the foundation’s objectives.
- Guardian: Oversees the foundation’s compliance with its purpose, particularly for charitable or minors’ foundations.
- Registered Agent: Required in certain jurisdictions, such as RAK ICC, to handle registration and administrative matters.
- Registered Office: Every foundation must maintain an official office in the jurisdiction where it is established.
Compliance, Reporting & Governance Obligations
1. Record-Keeping and Accounting
Foundations must maintain accurate financial records of all transactions, asset movements, and distributions. Proper record-keeping ensures transparency and smooth operation.
2. Annual Reporting
Foundations may be required to submit annual reports or financial statements to the regulatory authority to demonstrate compliance and good governance.
3. Anti-Money Laundering (AML) and Regulatory Compliance
Foundations must conduct due diligence on founders, council members, and beneficiaries. They must also ensure that all assets and funds comply with AML regulations.
4. Audit Requirements
Some jurisdictions require foundations to undergo an audit, especially if the foundation holds significant assets or engages in public interest activities.
Governance & Control Rights
1. Powers of the Founder
Founders can retain specific powers, such as the right to amend the charter or approve critical decisions. These powers must be clearly outlined in the foundation’s governing documents.
2. Council Powers and Duties
The council manages the foundation’s daily operations, oversees asset management, and ensures that decisions align with the foundation’s purpose.
3. Role of the Guardian
The guardian supervises the council and ensures that the foundation adheres to its objectives. They may also have veto powers for critical decisions.
4. Lifetime or Duration
A foundation can be established for a fixed term or perpetually, depending on the founder’s objectives and jurisdictional rules.
5. Migration of Foundations
Foundations can be migrated or continued into a different UAE jurisdiction if needed, subject to regulatory approval and compliance with local laws.
Assets, Activities & Restrictions
1. Types of Allowable Activities
Foundations are generally not allowed to engage in commercial business activities as their primary purpose. However, they may perform ancillary commercial activities to support their objectives.
2. Asset Ownership
A foundation can hold diverse assets, including real estate, shares, financial instruments, and other movable or immovable property. These assets must be used according to the foundation’s stated purpose.
3. Beneficiaries
Beneficiaries can be individuals, classes of people, corporations, or even other foundations. They are defined in the charter and bylaws.
4. Privacy and Confidential Structure
Foundations provide a confidential structure for governance and asset management. Beneficiary details and internal decision-making processes can remain private, offering security and discretion.
Tax & Regulatory Implications
1. Corporate Tax Treatment
Foundations generally enjoy favorable tax treatment within the UAE, benefiting from zero corporate or personal income tax in many cases.
2. Tax Benefits
Benefits include tax neutrality, no capital gains tax on foundation-held assets, and potential access to double taxation agreements depending on the residency of beneficiaries.
3. Regulatory Filings
Foundations may need to comply with additional filings, such as economic substance requirements, depending on the type of assets and activities they manage.
Special Legal Regime – Endowment & Minors’ Trust Foundation
Dubai’s Law No. 17 of 2022 introduced a special regime for endowment and minors’ trust foundations, focusing on protecting charitable and minor-owned assets.
Key aspects include:
- Management of endowed assets in compliance with local law and ethical investment practices.
- Oversight and governance to ensure assets are used according to the founder’s intentions.
- Charitable purposes and long-term asset protection for minors.
This type of foundation is ideal for individuals looking to leave a legacy or secure assets for young beneficiaries under strict legal protection.
Practical Steps to Set Up a UAE Foundation
- Choose the jurisdiction: Decide whether DIFC, ADGM, or RAK ICC best fits your needs.
- Draft constitutive documents: Prepare the charter and bylaws, clearly defining the foundation’s purpose and governance.
- Appoint key roles: Assign council members, guardians, and a registered agent if required.
- Submit registration: File all necessary documents with the relevant registrar.
- Open a bank account: Establish an account for the foundation’s assets and operations.
- Maintain compliance: Keep accurate records, follow AML requirements, and submit annual reports if needed.
Common Risks & Legal Considerations
- Non-compliance: Failing to maintain records or meet regulatory obligations can result in penalties.
- Internal disputes: Conflicts may arise among founders, council members, and guardians if roles are not clearly defined.
- Asset challenges: Improper transfers or unclear governance can expose assets to third-party claims.
- Reputation risk: Mismanagement may damage the foundation’s credibility.
- Succession risk: Weak governance rules can create problems in transferring control or assets in the future.
Why Use a UAE Foundation (vs Other Structures)
Compared to trusts and companies, a UAE foundation offers unique advantages:
- Legal personality: Owns assets independently.
- No shareholders: Governance remains within the council and the founder’s control.
- Confidentiality: Maintains privacy for beneficiaries and internal decisions.
- Flexibility: Suitable for wealth preservation, legacy planning, and charitable purposes.
Foundations are particularly effective for long-term planning and family governance, combining the benefits of corporate and trust structures into one secure vehicle.
Conclusion
A UAE Foundation provides a secure, flexible, and effective solution for managing assets, protecting wealth, and planning for the future. By adhering to legal requirements, maintaining proper governance, and choosing the right jurisdiction, founders can create a structure that safeguards their vision and objectives.
Professional guidance is essential to ensure compliance and avoid legal or financial pitfalls. With careful planning, a UAE foundation can serve as a lasting legacy, protecting assets and maintaining control across generations while supporting charitable or family-oriented goals.
Disclaimer: This content is for general informational purposes only and does not constitute legal, financial, or professional advice. For guidance specific to your situation, consult a licensed professional.
