Foundation Setup in the UAE: All You Need to Know

Over the past few years, Foundations have gained recognition as an efficient means to safeguard assets. With the UAE being an investment destination, more and more investors are looking to set up Foundations here to protect assets that are owned in the UAE as well as across the globe. Let’s explore more about a Foundation, the many purposes that it serves, and most importantly how to establish one.

What is a Foundation?

In simple terms, a Foundation in the UAE can be described as a legal entity possessing a legal personality different from its founder. This means that a Foundation can hold assets in its name rather than in the founder’s name. Therefore, a Foundation continues to exist and operate even after the founder’s death.

In wealth planning, it is common for Foundations to be confused with trusts. While a Foundation is an independent legal entity, a trust can be described as a relationship between three parties, namely the settlor (the individual creating the trust), the trustee (the individual receiving the assets), and the beneficiaries. It is the trustee who holds legal ownership of the trust. This is where a Foundation differs from a trust by eliminating the need to transfer assets to third-party trustees. A Foundation can enter into contracts on its own and can hold assets in its name.

The Purposes of a Foundation

Succession Planning

The most well-known purpose of setting up a Foundation in the UAE is wealth structuring and succession planning. Through the Charter of the Foundation, the founder can state the beneficiaries (known as qualified recipients) who will inherit the assets owned by the Foundation. It is key to note that the distribution of assets can be exactly as per the wishes of the founder. The fact that the inheritance can be completed without the need for probate, makes a Foundation an even more appealing option for distributing assets.

Asset Consolidation

A Foundation can hold different forms of assets and these can range from cash and company shares to investment bonds. An individual owning assets across the globe can transfer them to an offshore foundation in the UAE. This ensures that you can centralize ownership of your global assets under one Foundation. Furthermore, the companies held by a Foundation can do business and own assets internationally. A UAE offshore company owned by a Foundation can own real estate property in the UAE.

Asset Protection

It is crucial to note that the Foundation is the owner of the assets it holds and not the founder of the Foundation. Since the liability and ownership of the assets are separated, creditors or litigators cannot lay claim on the assets held within the Foundation should the founder face any legal or financial hurdles.

Steps to Establish a Foundation in the UAE

Setting the Objective of the Foundation

As the initial step, it is necessary to get clear on the objectives of the Foundation. Whether the Foundation is established for philanthropic purposes, for holding assets, or for structuring wealth, or a combination of these, the objectives must be decided and stated in the Foundation Charter.

Selecting Jurisdiction and Registered Agent

It is imperative to select the right jurisdiction for a Foundation in the UAE. The jurisdiction must be chosen based on factors like regulatory environment, privacy, and setup procedures. Ideally, the jurisdiction with a robust legal framework, guaranteed privacy, and simplistic establishment procedures must be your choice. It is also necessary to appoint a registered agent in the UAE for setting up a Foundation. The registered agent will assist you in selecting the appropriate jurisdiction that fits your budget and requirements.

Finalize the Foundation Council

The council must consist of no less than 2 members (including the founder). These members can be individuals or corporate entities. The council is responsible for handling the affairs of the Foundation in accordance with the Charter and the By-Laws.

Select the Guardian and the Beneficiaries

You must select the beneficiaries (also known as qualified recipients) who will be entitled to inherit the assets held by the Foundation. The beneficiaries can be individuals(s) or corporate entities. You must also appoint a guardian who will ensure that the council acts by the Charter, the By-Laws, as well as the regulations of the jurisdiction where it is based.

Preparing the Foundation Charter and Other Documents

The registered agent will prepare the Foundation Charter, By-Laws, and other relevant documents.

Foundation Charter: It is a key document that states the purpose of the Foundation, the governing structure, and the beneficiaries.

By-Laws: These specify the wishes of the founder of the Foundation as well as the responsibilities of the council members.

Registration

The registered agent will submit the prepared documents to the jurisdiction and take care of the necessary formalities involved in the establishment of the Foundation.

InZone is a corporate service provider in Dubai and specializes in the formation of offshore companies and Foundations in the UAE.