DIFC Foundation is a powerful legal structure used for wealth management, succession planning, and asset protection. It helps both UAE residents and international investors in safeguarding assets, family-owned businesses, and planning for future generations under a strong legal framework.
What is a DIFC foundation?
The Dubai International Financial Center (DIFC) established the DIFC Foundation regime in 2018 under DIFC Law No. 3 of 2018. It provides a modern and safe way for expatriates and international investors, whether Muslim or non-Muslim, to protect and administer their wealth in the UAE.
A foundation is a special legal entity to hold and manage assets for a specific purpose, such as the protection of family wealth, support of charitable purposes, or planning succession. Unlike a trust, a foundation has its own legal personality, so it may own assets, make contracts, and can take legal action in its own name.
Why Set Up a DIFC Foundation?
Increasingly, DIFC Foundations have gained popularity due to their flexibility, privacy, and robust asset protection. Such foundations are specifically suitable for the individual or family that seeks alternative means of managing and securing wealth.
An important advantage is that a DIFC Foundation can own property in Dubai. A Memorandum of Understanding (MoU) has been signed between the DIFC and the Dubai Land Department (DLD), allowing foundations to register and hold real estate in their own name.
The DIFC Foundation enables both UAE residents and international investors to establish a foundation for:
- Family asset management
- Business ownership structure
- Inheritance planning and
- Succession management.
The Structure of a DIFC Foundation
Several important roles have been instituted to define the operational aspects of a DIFC Foundation:
- Founder: The Founder is the person (or entity) who establishes the foundation. There must be at least one Founder, who may also serve as a council member. The Founder contributes the assets and defines the purposes of the foundation and its management.
- Council: The Council acts like a board of directors. It supervises and administers the foundation’s affairs in accordance with the Charter and By-laws. A council must have at least two members, one of whom can be the Founder.
- Beneficiaries: Beneficiaries are the persons, families, or entities that benefit from the assets of the foundation. The Founder identifies the Beneficiaries and defines their rights in the governance documentation.
- Guardian: The Guardian will supervise the Council and ensure it acts in accordance with the Charter, By-laws, and DIFC Foundation Law. This additional role serves to add another layer of protection to ensure that the Founder’s wishes are met. A Guardian is mandatory for charitable foundations. For non-charitable foundations with an undefined class of beneficiaries; it is optional otherwise.
Key Documents for DIFC Foundation Registration
Two primary documents are necessary for the establishment of a DIFC foundation:
- Charter: This document includes the name of the foundation, the purposes, procedures of governance, and registered office details. It should be filed with the DIFC Registrar of Companies.
- By-laws: The By-laws describe the main operational means of running the foundation, including the Council’s responsibilities and the governing of the foundation’s assets. Unlike the Charter, the By-laws are kept confidential.
DIFC Foundation Registration Process
A DIFC Foundation must have a registered office within the DIFC. Registration is done through the DIFC Registrar of Companies, and the procedure consists of:
- Reservation of Name and Preparation of Documents: Reservation of the name of the foundation and preparation of the Charter and By-laws.
- Submission to DIFC Registrar: Filing all the documents required for establishment and payment of registration fees.
- Obtain the Certificate of Establishment: Once approved, the Registrar issues a certificate which confirms the legal establishment of the foundation.
Generally, the founders have a registered agent or corporate service provider appointed to facilitate registration, filing, and compliance requirements in the DIFC.
Key Benefits of a DIFC Foundation
Setting up a DIFC Foundation offers several advantages:
- Strong Governance: DIFC Foundations give a robust and enforceable legal framework to manage assets and wealth.
- Confidentiality: Details such as beneficiaries and internal governing matters are kept private for discretion and peace of mind.
- Succession Planning: Smooth transfer of wealth and family assets across generations can be achieved without issues.
- Asset Protection: Assets held under a Foundation are protected from personal liabilities, creditors, and litigation.
- Freedom from Forced Heirship Rules: DIFC Foundations are not bound by UAE civil inheritance law but empower the founder to distribute assets at will.
- Charitable or Non-Charitable Uses: They can be used either for charitable purposes, family wealth management, or both.
- Cost-Effective and Straightforward: DIFC Foundations are generally more affordable and easy to administrate than many offshore or foreign structures.
Types of DIFC Foundations
Depending on the Founder’s objective, DIFC Foundations can be structured in three broad types:
- Charitable Foundations: The Purpose is to engage in activities of a public (support philanthropic), social, or humanitarian nature.
- Non-Charitable Foundations: Meant for the purposes of private wealth management, asset protection, and family business ownership.
- Mixed Foundations: A combination of charitable and private wealth purposes under one structure.
The law and regulations applicable to each type should be adhered to in order to remain a compliant entity.
Compliance and Transparency
Although maintaining a high degree of privacy, DIFC Foundations are subject to Anti-Money Laundering (AML) and Ultimate Beneficial Ownership (UBO) regulations. These mainly require that Founders and Councils keep proper records of their activities and provide relevant information to authorities whenever required.
It ensures a comfortable balance between confidentiality and compliance with regulations, so the foundation remains legitimate and protected by UAE law.
How HHS Lawyers Could Help
At HHS Lawyers, our Estate Planning lawyers in Dubai offer full assistance with the setting up and administration of a DIFC Foundation. This includes creating the Charter and By-Laws, submitting legal documents for registration, and advising on compliance and governance.
No matter your aim is Asset Protection, Family Wealth Planning or Charitable Contributions, we tailor a structure to your long-term objectives while ensuring compliance with any and all DIFC regulations.
Get in touch with HHS Lawyers today for booking a consultation and learn how we can help establish a DIFC Foundation in Dubai that is tailored to suit your needs, personal or business-related.
