Few years ago, when we were discussing Foundations in the UAE, there was limited understanding as it was a new concept. Nowadays, this is no longer the case.
As the world is evolving in a high speed so does the corporate world and the demand for foundations (worldwide and in the UAE).
The demand of the Foundations in the UAE has increased greatly the last few years and even more during the pandemic period.
For those who are not familiar to Foundations, we would like to first provide a brief explanation herein below.
A foundation is an independent legal entity, with a legal personality different from its Founder. The Foundation consists of council members and the founder. The foundation's founder bestows assets to the foundation and owing to its separate legal status, will hold those in its own name and separately from the founder's personal wealth. Those assets are then managed by the foundation council (equivalent to a board of directors for a company) in accordance with the foundation's charter and by-laws (reflecting the intentions of the founder) in support of a cause or a purpose, or for the benefit of beneficiaries.
The United Arab Emirates (the "UAE") offers Foundation solutions, currently in Dubai, Abu Dhabi and in Ras Al Khaimah (RAK).
Please see below the current available government authorities where Foundations can be formed:
- Dubai under the Dubai International Financial Center (DIFC) - Foundations DIFC Law No. 3 of 2018;
- Abu Dhabi under the Abu Dhabi Global Market (ADGM) - Foundations Regulations 2017;
- Ras Al Khaimah (RAK) under the RAK International Corporate Centre (RAK ICC) - Foundations Regulations 2019.
In this article, we would be elaborating on the registration of a RAK ICC Foundation. The relevant RAK ICC regulations provide for the registration of a Foundation to be established by a founder who will dedicate certain assets towards specified charitable or non-charitable purposes.
RAK ICC Foundation is registered in a few days as long as all the required information and documentation is provided.
COMMON AND POPULAR USAGES OF A UAE FOUNDATION
Foundations are popular solutions for wealth structure and succession planning. The beneficial purposes are determined by the "Founder" and at the same time retain a level of independent legal personality; distinct legal personality that separates liability whilst maintaining control of assets.
Foundations are well suited for multiple purposes including protection of your estate, protection of privacy and confidentiality, protection from creditors, wealth planning, asset protection, charitable institutions and corporate structuring. It is also suitable for inheritance planning.
The Founder transfers his/her wealth into the Foundation which hold and manage the wealth for the benefit of the beneficiaries appointed. The Foundation will hold the ownership over the wealth and/or property and the beneficiaries will receive all the profits and benefits of the Foundation. A Guardian needs to be appointed who will protect and watch over the Council of the Foundation. The Foundation is governed by its Charter and By-laws that state the powers of the Guardian and the Council. The powers are can be drafted into the By-laws by Founder as desired.
LEGAL FORMALITIES TO SET UP A FOUNDATION IN THE UAE
When forming a Foundation the following are required:
Founder: A minimum of one (1) founder is
required, can be an individual or an entity.
Council: Formed by the Founder, the Council must comprise at least of two (2) members, which can include the Founder. The Council's role is to conduct the affairs of the Foundation, similar to a board of directors, in accordance with its Charter and By-Laws and applicable laws.
Guardian (if any): The Guardian can be an individual or an entity and is appointed by the Founder to supervise the Council. The Guardian must take reasonable steps to ensure that the Council carries out its functions appropriately. Powers may be reserved to the Guardian in the By-Laws to approve or reject actions taken by the Council.
Registered Agent and Registered Office Presence: Oxford can provide for both.
Beneficiaries: also known as 'qualified recipients' are appointed by the Founder and can be an individual, group or further entity. Qualified recipients have no rights to or interest in respect of the foundation other than a right to payment or receipt based on the constitutional formation documents.
Governing Documents: The constitutional documents of a Foundation consist of its Charter and By-Laws which are recommended be drafted according to the goals and wishes of the Founder and Foundation. Our firm can assist in this process.
The Benefits and Key Factors for considering a Foundation
Can serve as a vehicle for protecting the assets of high net worth individuals, entrepreneur and business people. Most of the benefits and key factors consist of the following:
- Asset protection - this way the assets are not accessible to the creditors, governments or family members
- Privacy - the beneficiaries are private and therefore the wealth is managed more discretely. This way the risk is reduced of having uncomfortable discussions with family members and heirs.
- Flexibility - this is applicable especially when the wealth and assets are in a variety of jurisdictions and not to just one location.
- Succession planning - Foundations provide assurance that the assets are distributed as per the beneficiaries wishes under the stated terms regardless of the succession laws.
- Better family governance - This enables the wealth to be managed in a professional manner to benefit the beneficiaries and their families.
- Philanthropic giving - The Foundation evolves around the beneficiaries' vision and ethical wishes including donation on a regular basis.
- Having a legacy through the Founder's goals setting in place all legal and regulatory requirements.
Benefits of the RAK ICC Foundations
- RAK ICC is internationally compliant Registry;
- Robust governance structure;
- Tax regime in the UAE. RAK ICC Foundations have 0 % corporate tax rate, a 0 % personal income tax and also access to a wide network of 'Double Taxation' treaties;
- Flexibility with beneficiary classes;
- No record of beneficiaries as this information is confidential and known only to RAK ICC and registered agent;
- Suitable for inheritance planning and holding of family assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.