02 Jan Establish a UAE Foundation
The United Arab Emirates (UAE) has emerged as a leading international financial center in the Middle East, offering a favorable environment for wealth management and asset protection. One of the key structures available in the UAE, particularly in its free zones, is the foundation – a legal entity designed to hold and manage assets for specific purposes. This article provides an overview of foundations in the UAE free zones, their types, purposes, governance, and compliance considerations.
Understand the concept of the UAE Foundation
A foundation is an autonomous and independent legal entity that is separate from its founder. The United Arab Emirates foundation consists of council members and the founder. The foundation’s founder allocates assets to the foundation, which are treated as separate from those belonging solely to the founder. Those assets are then managed by the foundation council, which acts like a company board of directors following the foundation’s charter to benefit the beneficiaries.
Foundations are versatile and used for various purposes, such as protecting your estate, privacy, wealth planning, uae corporate tax mitigation, inheritance planning, and charitable giving.
Types of Foundations in the UAE Free Zones
The UAE free zones allow for the establishment of various types of foundations, each serving different purposes:
Charitable Foundations
These foundations are dedicated to philanthropic and charitable purpose related works, promoting social welfare, education, or humanitarian initiatives like the Emirates Red Crescent Authority or Zakat fund.
Non-Charitable (Private Interest) Foundations
Also known as private foundations, these entities are designed for private interests, such as asset protection, wealth management, and succession planning, often serving as family foundations.
Family Foundation
Similar to private foundations, family foundations are established to hold and manage assets for the benefit of a specific family, facilitating intergenerational wealth transfer and governance while navigating forced heirship rules.
Purpose Foundations
These foundations are created for a specific purpose, such as holding shares in a company, managing intellectual property rights, or serving as special purpose vehicles (SPVs) for investments or holding structures.
Purposes and Uses of UAE Foundations
Foundations in the UAE free zones serve a variety of purposes, including:
Asset Protection and Wealth Management
Foundations provide a secure and flexible structure for holding and managing assets, safeguarding them from potential risks or liabilities.
Succession Planning and Family Governance
Family foundations facilitate the orderly transfer of wealth across generations, ensuring continuity and effective management of family assets among family members.
Philanthropy and Charitable Initiatives
Charitable foundations enable individuals and organizations to pursue philanthropic goals, support social causes like community development or Islamic affairs, and create lasting legacies as the qualified recipient.
Special Purpose Vehicles (SPVs) for Investments or Holding Structures
Purpose foundations can act as SPVs for holding investments, intellectual property rights, or other assets, providing a flexible and tax-efficient structure.
Which jurisdictions in the UAE offer Foundation solutions
Dubai, Abu Dhabi, and Ras Al Khaimah offer easy foundation options via free zones. Please see below the free zones where foundation solutions are currently available:
- Dubai International Financial Center (DIFC)
- Abu Dhabi Global Market (ADGM)
- RAK International Corporate Centre (RAK ICC)
While mostly similar, each free zone has slightly different rules and regulations. Your best option for a foundation in the UAE may depend on the location of the asset to be protected. Typically, the location of your property can play a significant factor .
The startup and ongoing fees and service levels also differ between the three. However, all the locations benefit from the UAE’s comprehensive network of tax treaties and political stability.
Dubai International Financial Center (DIFC) Foundation
The DIFC free zone allows DIFC companies to be converted into a foundation which makes it different than the other two jurisdictions. DIFC foundations can also have solely charitable purposes and own real estate within the Emirate of Dubai .
The requirements to start a DIFC foundation are:
- one or more founders (either individuals or legal entities)
- a minimum of two council members
- a guardian if the foundation has charitable purposes
- beneficiaries who must be individuals
You are not required to go through a registered agent to start your foundation and can approach Dubai International Financial Centre directly. However, foundations must always maintain a registered office within DIFC.
Abu Dhabi Global Market (ADGM) Foundation
Abu Dhabi Global Market free zone foundations can own real estate in the Emirate of Abu Dhabi and benefit from private arbitration of disputes in English based on the laws of England and Wales.
All applications to launch a foundation must be submitted by an ADGM company service provider, whose role includes ongoing statutory filing requirements. You can find a list of officially licensed ADGM company service providers via this link .
The requirements to start an ADGM foundation are:
- one or more founders (either individuals or legal entities)
- a minimum of two council members
- a guardian if no surviving founder
- beneficiaries who can be individuals or legal entities
Foundations must always maintain a registered office within ADGM.
RAK International Corporate Centre (RAK ICC) Foundation
RAK ICC stands apart from the other two jurisdictions because its registry is not available to the public; therefore, it is the primary choice for those valuing privacy and confidentiality.
Currently, there is no requirement to audit accounts or file tax returns for RAK foundations with RAK ICC. Foundations can access ADGM and DIFC courts where laws are structured on those of England and Wales.
The requirements to start a RAK ICC foundation are:
- one founder (either individuals or legal entities)
- a minimum of two council members
- a guardian if the foundation has charitable purposes
All RAK ICC foundations must appoint a registered agent and maintain a registered office in the United Arab Emirate.
Governance and Management of Foundations
Foundations in the UAE free zones are governed by a council or board of directors appointed by the founder(s). The council oversees the foundation’s operations, ensures compliance with foundation charter and the foundations law, and manages its assets.
Founders can also appoint guardians or beneficiaries to safeguard the foundation’s interests and ensure its objectives are met. Robust administration and record-keeping requirements are in place to maintain transparency and accountability.
Taxation and Compliance Considerations
Foundations established in UAE free zones benefit from favorable tax regimes, with exemptions from certain taxes, such as corporate income tax and value-added tax (VAT). However, it is crucial to comply with reporting and regulatory requirements, including anti-money laundering (AML) and know-your-customer (KYC) regulations.
Seeking professional advice from legal and tax advisors, as well as corporate services providers, is recommended to ensure compliance and maximize the benefits of establishing a foundation in the UAE.
You’ve got questions about UAE Foundation; we’ve got answers!
The UAE’s free zones offer a conducive environment for establishing foundations, providing a robust legal framework, asset protection, and wealth management solutions. By understanding the types of foundations available, their purposes, governance structures, and compliance considerations, individuals and businesses can make informed decisions regarding their wealth management and philanthropic goals.
Proper planning and due diligence are essential to ensure the successful establishment and ongoing management of foundations in the UAE free zones, leveraging the knowledge and expertise of relevant authorities like the Abu Dhabi Government or Dubai Land Department where applicable.
Would you like to know more about UAE foundations and how they can benefit your circumstances? Then, don’t hesitate to contact one of our business setup consultants for a free consultation so we can give you our best professional advice.
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