There are various options for managing your estate in the UAE, but one of the most successful way is establishing a foundation. High-net-worth individuals, families, and corporations in the UAE (including locals and ex-pats) may use foundations to create a structure that helps with wealth management and preservation, family succession planning, tax planning, asset protection, corporate structuring, and other issues. It provides more assurance and comfort that the assets will be allocated according to the Founder’s desires, with the Foundation’s lifetime lasting indefinitely after the Founder’s death. The UAE’s Sharia Law does not contain any provision for the formation of Trust or Foundation. However, creating a foundation is a tax-advantaged way to safeguard your assets.
A foundation is a different legal body that retains assets separate from the Founder’s personal property. Unlike a trust, a common-law term, the Foundation was developed in civil law states. In the sense that it has its own legal identity, it is akin to a corporation. On the other hand, a foundation is an “orphan” entity that does not issue shares or other legal titles. A foundation must engage in at least one commercial activity that benefits one or more beneficiaries (named or not). A foundation’s charter and by-laws, which combined embody the Founder’s desires, regulate it. It is run by Council Members and can be overseen by a Guardian who guarantees that the Foundation is run according to the Founder’s wishes. The Foundation, in its own right, owns a foundation’s assets.
What is a foundation?
A foundation is a separate legal entity from the rest of the organization. In contrast to trust, a common-law notion, it originated from civil law states. The Foundation’s creator bestows assets to the Foundation, which will keep those assets in its name, apart from the Founder’s fortune as a distinct legal body.
The Foundation is self-owned and has no members or stockholders. The foundation council manages the assets in conformity with the Foundation’s charter and by-laws for the benefit of beneficiaries or in support of a cause or purpose.
Why use foundations in the UAE?
A Foundation may offer Asset Protection by holding shares in subsidiary firms, separating legal ownership from usufruct rights. It may also be used for Estate Planning, where the Founder transfers title to his assets to the Foundation, and the Foundation distributes his money following his desires. Foundation Formation is especially advantageous if you have assets in many locations, such as real estate in Dubai or a holding company in Singapore.
The following are the key reasons why foundations are used:
- Asset management, succession planning, and estate planning;
- Asset protection against forced inheritance rules, aggressive creditors, and takeover offers;
- Structure for long-term holding;
- To support charity and philanthropic causes.
A family-owned firm usually has one family member at the head, with several additional family members holding crucial positions and expressing how the business is managed. Switching from a single family member to a more organized, professionalized leadership is frequently required to take these family businesses to the next level in terms of growth.
A foundation in the UAE is a straightforward approach for the family to transfer over management while maintaining control of their firm. By transferring ownership of their company to a foundation and hiring competent management, they can reduce the chance of crucial personnel being incapacitated or dying unexpectedly. While delegating executive authority to professionals, the family can maintain ownership control through a properly structured foundation.