DIFC Foundations
The Dubai International Financial Centre (DIFC) is a premier financial hub in the Middle East, Africa, and South Asia (MEASA) area and is one of the top 10 worldwide financial centers. With over 5,000 active registered firms and about 40,000 professionals operating within a thriving business ecosystem, the center offers a strong independent judicial system, a global financial exchange, creative architecture, and enabling support services.With nearly 20 years of experience, DIFC has helped to facilitate investment and trade flows throughout MEASA, a region that has a combined population of almost three billion and a nominal GDP of roughly USD 8 trillion.
What are DIFC Foundations?
The DIFC Foundations Regime was setup to provide a common law substitute for trusts in financial planning and structuring purposes. Like trusts, foundations can be used for a number of purposes such as asset protection, succession and tax planning, asset management, corporate structuring, and public interest foundations that serve multiple generations.
What are the benefits of setting up a Foundation in the DIFC?
Asset Protection
Governments, creditors, and/or other family members who might otherwise have claims against the family can easily access assets kept under personal names. However, a Foundation’s assets are legally separate from the Founder, and hence not readily accessible in case of claims against the Founder.
Privacy
The Founders and Beneficiaries of a DIFC Foundation are private and this helps in managing assets more discreetly. Names of the Founders do not appear on official docuements such as land registries, title deeds and company registers, and this minimises the risk of potential claims from related or unrelated third-parties.
Tax Planning
Large families have members with assets in multiple jurisdictions and subject to local tax laws and inheritance taxes. Effective structuring can be achieved using Foundations to facilitate smooth transfer of generational wealth and minimise tax exposures.
Succession Planning
A foundation gives the Founder the ability to specify their preferences for what happens to their assets and related benefits when they pass away and guarantees that the distribution of those assets will follow the founder's wishes and the conditions outlined in the foundation.
What are the specific advantages of setting up a Foundation in the DIFC?
- The DIFC is a financial free zone with it’s own civil and commercial laws with access to DIFC Courts where proceedings are carried out in the English language under the familiarity of Common Law.
- The assets of the Foundation may comprise shares, bank accounts, aviation assets and any other asset that is legally permissible, anywhere in the world.
- The Foundation has a distinct legal personality and hence the flexibility to enter into contracts and arrangements directly, like any other incorporated entity.
- Foundations can be redomiciled (migrated) in and out of the DIFC
- Governance structures can be amended once established
- Commitment of initial assets of as little as US$ 100 to the Foundation
- No physical office requirement – foundations can use the address of a company service provider in the DIFC
- No requirement for a Founder or Foundation’s officers to be based in the UAE or maintain residency in the UAE
- All Foundation roles can be individuals or body corporates
- Limited public disclosure with no individuals’ names on the DIFC public register
- No requirement for filing of annual returns, accounts or audits
Can I hold property in the name of a DIFC Foundation?
A DIFC Foundation is allowed to hold property in the Emirate of Dubai (both Muslims and non-Muslims) in designatedareas for foreign ownership. The DIFC has an existing MOU with the Dubai Land Department to this effect.
An application can be made for the transfer fee to be reduced from 4% to 0.125%, in instances where it can be demonstrated that the beneficial owner of a Dubai property being legally transferred to a Foundation is the same.
Designated areasinclude:
- Business Bay.
- Dubai Sports City.
- Dubai Marina.
- Dubai Motor City.
- Emirates Hills.
- Dubai South.
- International City.
- Jumeirah Lakes Towers.
- Jumeriah Islands.
- The Palm Jumeirah.
- Arabian Ranches.
- The World Islands.
- Mirdiff (specified plots).
- Downtown Dubai.
- Dubai Investment Park.
- Old Town.
- Discovery Gardens.
- Burj Khalifa.
- Meydan.
- Jumeirah Beach Residence.
- Falcon City.
- Jumeriah Village.
Can a DIFC Foundation be a shareholder in other companies?
Yes, Foundations can be the direct shareholders of companies set up in the larger free zones in Dubai, such as JAFZA and the DMCC. Other free zones are also beginning to accept Foundations as shareholders in companies.
What is the process to set up a Foundation in the DIFC?
Setting up a Foundation in the DIFC involves the following steps:
- Collation of documents – This includes detailed KYC on the founder, council members and guardian of the Foundation.
- Preparation of resolutions and legal documents – Preparation of the Charter and By-Laws of the Foundation. While these can be standard templates, we recommend customization given the specific requirements of each client.
- Finalisation of Registered Address – this can be a physical address at the DIFC, or can be provided by 10 Leaves as a Registered Agent.
- Initial submission to the DIFC Registrar of Companies
- DIFC Review/clarifications and responses
- Final Approvals – the Foundation is now formed!
- Bank account opening/visas if applicable
What is the legal system that is followed in the DIFC?
The DIFC Courts are an independent English language common law judiciary, based inthe DIFC with jurisdiction governing civil and commercial disputes nationally, regionally and worldwide. The Courts began operations in 2006.Originally, the jurisdiction of the DIFC Courts was limited to the geographical area of theDIFC. The signing of Dubai Law No 16 in 2011 allowed the DIFC Courts to hear any local or international cases and to resolve commercial disputes with the consent of all parties.
What are the differences in the legal structures of a DIFC Foundation and a Trust? Foundation:
- A foundation is a distinct legal entity, much like a company.
- A foundation can contract with external parties
- It can hold assets, including real property, in its own name.
- A foundation can sue and be sued in its own name.
- The foundation holds the legal and beneficial title to the assets.
- A trust is not a distinct legal entity.
- The legal rights and obligations are with the trustees (rather than the trust itself) and the trustee in effect contracts in its own name on the trust’s behalf.
- Legal ownership of the trust fund is with the trustees
- Beneficial ownership of the trust fund is with the beneficiaries.
- The trustees would have to sue and be sued in their name.
The Founder is the individual or body corporate that brings in the assets to the DIFC Foundation. The Founder usually retains certain powers as per the provisions of the Law, the Charter and the By-Laws of the Foundation.
How can a Founder keep and exercise control on the Foundation and it’s assets?
The following control mechanisms may be included in the Charter and By-Laws:- Appointment and removal of Council Members and/or the Guardian;
- Appointment of the Founder as a Council Member with casting vote rights;
- Veto rights over specific matters (as Guardian);
- Reserved powers to amend the Charter and By-Laws, including dissolution of the Foundation.
Similar to the Director of a company under Common Law, the Council Members of a DIFC Foundation govern it’s operations and administration in accordance with the Foundation Charter and By-Laws. The members of the council may include the Founder and a corporate body, such as a company service provider.
Guardian
Overseas the operations of the Foundation and the council. Appointment is optional unless the DIFC Foundation has a charitable object or a specified non-charitable object, and this appointment becomes mandatory following the death of the Founder.The Founder or a professional service provider may be appointed as the Guardian.It is not possible for the Guardian to be a member of the Foundation Council, given that the Guardian’s role is to oversee the activities of the council. The Foundation’s By-Laws can include powers for the Guardian to sanction any specific actions that are undertaken by the Council in line with the best interests of the Foundation.
Beneficiaries
The beneficiaries are the individuals or corporate bodies who have been nominated to benefit from the assets held within the DIFC Foundation. They would have to be named in the documents of the Foundation and the Founder can be the sole beneficiary or one of the beneficiaries of the Foundation.
Does a DIFC Foundation require a Registered Agent?
A Foundation in the DIFC is required to have a registered office in the centre, where all relevant communications and notices can be delivered. This can be accomplished by:
- Leasing office space in the DIFC;
- sharing office space with an affiliate established in the DIFC; or
- appointing a Registered Agent.
A Registered Agent is a “Qualified Person” (such as 10 Leaves) licensed by the DIFC and registered with the DFSA as a Company Service Provider. The registered agent provides the following services:
- Assistance in setup of the Foundation
- Preparation and filing of the Charter and By-Laws of the Foundation
- Providing the Registered Address for the Foundation
- Administration of the Foundation and secretarial services
- Accounting and bookkeeping services
- Compliance and AML services
The name of a DIFC Foundation must end with the word ‘Foundation’. It should also comply with the naming rules that are in force at the centre.
What is the Foundation Charter? What does it need to contain?
The Charter is the main document of a DIFC foundation. It contains the provisions governing the organisation, assets and purpose of the foundation.The charter must state:
- the name of the Foundation;
- the name and address of the Founder or each of the Founders;
- the objects of the Foundation;
- if the Foundation has been established for a specific purpose, the purpose for which the Foundation has been established;
- a description of the Initial Assets;
- provisions for the establishment of a Council;
- the name of a natural person or Legal Person who shall become a Beneficiary;
- only in circumstances where a Foundation has no other Beneficiary (the “Designee”);
- the name and address (in the DIFC) of the Foundation’s Registered Agent, if any;
- the address of the Foundation’s registered office in the DIFC; and
- the term for which the foundation is established, if any, or the details of any contingent event, which will trigger the dissolution of the Foundation.
Foundations, like trusts, are primarily used for structuring and legacy planning. A typical structure is as below:
The Founder transfers assets to the Foundation, and the Council Members manage the structure, in accordance with the Foundation Charter and By-Laws. A Guardian may be appointed but becomes mandatory upon the death of the Founder. Various assets can be brought under the DIFC Foundation. These may include shares in operating (or non-operating) companies, investments in listed stocks, bonds and commodities, real estate and alternative assets. The assets can be located within the UAE, or anywhere else in the world.Consolidation of all the assets of the Founder under one structure allows for easier management and transfer of these assets in any eventuality. The assets of the DIFC Foundation can be distributed to the named Beneficiaries of the Foundation, as per the instructions of the Founder. Since the Foundation takes a company structure, it can be carried on till perpetuity.
Can DIFC Foundations be used for charitable activities?
Yes, DIFC Foundations can be used for philanthropic activities, provided that they are structured to allow for such activities. They should also comply with all applicable UAE Laws.
Can the ownership of existing operational business be transferred into the DIFC Foundation, without any disruptions?
Yes, the transfer of the shareholding of existing companies within the UAE and the GCC is a simple process. In essence, it is a share transfer in the operational entity. There are some free zones in the UAE that curently do not recognise DIFC Foundations - in these cases, we have worked with DIFC Prescribed Companies to hold such assets and the shares of the Prescribed Company are in turn held by the DIFC Foundation.
Does the DIFC Foundations Regime require any kind of local representation at the DIFC?
The DIFC Foundation can use the address of a registered agent – it does not have to lease an office separately.
Does the DIFC have special courts for DIFC Foundations?
The DIFC Courts have jurisdiction over DIFC Foundations, and the Regulations specify a pro-active role for DIFC Courts.
Can the DIFC Foundation be Sharia'-compliant?
The DIFC Foundation can apply Sharia' principles to it's governance and consolidation of underlying assets.
Do DIFC Foundations have to file ESR reports every year?
The UAE Economic Substance Regulations were introduced in April 2019 and implemented as part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation. DIFC Foundations do not fall in the scope of these regulations.
Can a DIFC Foundation be used to hold charitable endowments?
It can. In everyday language, an endowment is a gift or grant given with the intention of supporting a charity cause. The proceeds from this gift or donation may be invested and utilized to fund other initiatives or business expenses. Numerous legal frameworks, such as endowments, trusts, foundations, and charitable organizations, have been used for philanthropic endeavors over the years. The process by which a nonprofit or benevolent organization gathers, invests, and then distributes the profits or income from those investments to support charity endeavors in the long run is known as a philanthropic endowment. The most important thing to remember is that the giver of the donation forfeits all rightful and beneficial ownership of the donated funds and does not expect them to be reimbursed or returned. Donated money are only utilized for the benefit of the designated recipient (a nonprofit or not-for-profit organization) and establish a philanthropic endowment for them.A legal instrument that records the terms of a gift or donation and facilitates the transfer of ownership from the donor to the intended recipient—a charitable or not-for-profit organization—establishes a charitable endowment. This legal instrument may choose to apply English common law as applied in the DIFC and be enforced by the DIFC Courts. The kind of form the charitable endowment adopts will determine the kind of legal instrument that is used, among other factors. For example, a Foundation Charter, a Trust Deed, and a Company Constitution, Articles of Association, or a Board of Directors resolution are required for a DIFC Foundation.
Can a Foundation apply for residence visas and work permits?
Yes it can, provided that it has office space leased in the centre, and is not using the services of a Registered Agent to fulfil this requirement. The Government Services Office in the DIFC is dedicated to providing a wide range of administrative services, and one of these is the issue and renewal of employment visas. The DIFC offers visas based on the amount of office space availed, with roughly 100 sq.ft. per visa allocation.
What is an Establishment Card?
The establishment card is a card issued by the General Directorate of Residency and Foreigners Affairs in Dubai to allow an entity to submit employment visa applications. It is for the entity who requires visas under DIFC and will not be required for those who are not in need of any visa. You can apply for visas under DIFC once the Foundation is incorporated.
What is a Personal Sponsorship Deposit (PSA)?
The Personnel Sponsorship Agreement (PSA) is an agreement that must be signed with DIFC Authority if the Foundation wishes to sponsor employees.
DIFC DEWS
The DIFC has implemented a path-breaking Employee Workplace Savings Plan, called DEWS, to restructure the previously defined employee benefit plan into a funded and professionally-managed, defined contribution plan. The DEWS initiative also offers a voluntary savings plan, allowing employees working in the DIFC to secure their financial future in an easy-to-manage fashion. DEWS has found significant traction within the centre, and together with the DIFC Employment Law, provides employees and employers with a world-class Human Resources framework.Gratuity calculation is 5.83% of employee’s current basic salary up to five years of service and 8.33% for the period in excess of five years.
Do I need to be physically present to apply for the DIFC Foundation?
No, the DIFC client on-boarding system is fully digital and the process is done online. 10 Leaves will assist you throughout this process.
How much does it cost to setup a Foundation in the DIFC?
DIFC Foundations are pretty cost-effective, with DIFC fees as low as US$ 200 in the first year and US$ 500 subsequently. We can structure your foundation, including drafting of all required documents through 10 Leaves Legability (Foundation By-Laws, Foundation Charter, Council agreements etc.). Do contact us for a customised quote!
How Can 10 Leaves help you?
10 Leaves is a Company Service Provider at the DIFC.
We offer the following services related to DIFC Foundations:
- Structuring and customization of the Foundation Charter and by-laws – in partnership with Legability, our legal platform, we are able to customize the Foundation to suit your requirements. We are able to factor in Common Law, UAE Law, European laws, Kuwaiti and Saudi Law, to deliver a highly personalized document for your asset protection requirements.
- Foundation Setup.
- Registered Address.
- Nominee Services (Council members, Guardians).
- Additional consultations on International Foundations in Luxembourg.
Are you looking to Set up a Foundation in the DIFC? Contact us today
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