06 Mar A comparison of foundations in DIFC, ADGM and RAKICC
Since 2016, when the UAE first introduced legislation allowing the use of foundations, they have become a popular tool for regional wealth structuring and succession planning in the UAE and offer a unique alternative to other recognised wealth management structures such as trusts and offshore companies.
Foundations can be established in three jurisdictions in the UAE: Abu Dhabi Global Market (ADGM), Dubai International Financial Centre (DIFC) and Ras Al Khaimah International Corporate Centre (RAKICC).
All offer similar benefits regarding legal framework, governance requirements and tax treatment, and all offer effective solutions for holding and managing assets. However, they differ in a few key areas, so it’s crucial to understand how these may affect your objectives.
How are foundations used?
Foundations are legal entities created for specific purposes, such as supporting a charitable cause, managing assets, or promoting education or research. Foundations are typically established by individuals, families or companies with the goal of intergenerational legacy planning and wealth protection in different international jurisdictions.
A foundation is a self-owned entity or ‘orphan structure’ with no shareholders or members. This offers a layer of separation between the founder and the assets of the foundation. If you consider the example of a private company, shares are held by individual shareholders in a personal capacity and remain at risk of third-party arrangements, debts, and even probate or estate planning complications. Foundations are usually established as non-profit entities, which means that their primary goal is not to generate profits for their owners or founders but to use their resources to achieve their stated objectives. Depending on the jurisdiction in which a foundation is established, it may be subject to various legal requirements, including filing annual reports, maintaining accurate records, and meeting certain financial and operational standards. In ADGM and DIFC, foundations can be established under common law, which provides investors with a clear and well-established legal framework that provides greater certainty and predictability in the event of legal disputes and allows for greater flexibility in terms of how they can be structured. RAKICC offers a choice of common law jurisdictions between either the courts of ADGM or DIFC.
Foundations are generally governed by council members and a guardian responsible for managing the foundation’s activities, making decisions about allocating resources, and ensuring that the foundation operates according to its stated goals and legal requirements and is aligned with the founder’s wishes.
How do foundations in ADGM, DIFC and RAK ICC differ?
While all three jurisdictions share many similarities, foundations in ADGM, DIFC and RAKICC differ in certain key areas. These include:
Governance requirements
Although broadly similar, foundations in ADGM, DIFC and RAKICC have differences in their governance requirements. For example, the DIFC requires foundations to have at least one natural person as a founder or council member, while RAKICC dictates that there must be two. Both the ADGM and RAKICC allow for corporate founders and council members. In addition, however, the ADGM requires that at least two council members reside in the UAE. It is designed this way to ensure that the foundation has a meaningful connection to the UAE and can establish meaningful partnerships with local organisations. DIFC does not impose this requirement, primarily because it recognises that those best suited to serve on a foundation’s council may not necessarily be resident in the UAE. This also helps to broaden its international appeal.
Use of foundation assets
Foundations in ADGM and DIFC have different requirements regarding the use of foundation assets. For example, the ADGM Foundations Regulations require that a foundation’s assets be used only for its charitable purposes, while the DIFC Foundations Law allows for the use of assets for purposes that are not strictly charitable, as long as they are consistent with the foundation’s objects. In RAKICC, assets can be used for a variety of purposes as long as they are outlined in its charter or founding documents and they are consistent with the jurisdictions governing laws and regulations.
Public information
A comparison of foundations
DIFC ADGM RAKICC Public information Name and address of foundation and registered agent Name and address of foundation and registered agent Registrar not open for public inspection. Information related to management available only to person(s) with sufficient interest Confidential information Name and address of each councillor, any beneficiaries, guardian (if any) and each beneficial owner of each founder Name and address of each councillor, any beneficiaries, guardian (if any) and each beneficial owner of each founder All other information private and not disclosed unless required by relevant authorities
Taxation
ADGM, DIFC and RAKICC all provide tax benefits to foundations. All are exempt from income tax and capital gains tax meaning that they are not taxed on the income they earn, and their beneficiaries are also exempt from paying taxes on the distributions they receive from the foundation. However, DIFC, unlike ADGM and RAKICC imposes a 5% withholding tax on any distributions made to beneficiaries who are resident in the UAE. Non-resident beneficiaries remain exempt from this.
Economic activity
While both DIFC and ADGM are broadly set up to cater for organisations in financial and professional services, the specific focus of each differs slightly.
DIFC mainly attracts banks, financial institutions and law firms and tends to focus on wealth management, private equity and Islamic finance businesses, whereas ADGM specialises more in emerging technologies such as fintech and digital assets. It has also developed a strong reputation for arbitration and dispute resolution.
RAKICC’s focus is a little more diverse and attracts investors from a variety of sectors, including tourism, manufacturing, construction, agriculture and service-based businesses.
These differences in the business environment of all three jurisdictions may influence which one you choose for your foundation and its objectives.
Final thoughts
Overall, foundations offer an excellent solution for wealth structuring and legacy planning thanks to the high degree of control and protection they provide. They combine useful elements of both private companies and trusts and offer investors a great deal of flexibility and privacy.
ADGM, DIFC and RAKICC all have excellent foundation regimes and are good choices for setting up a foundation. Choosing between them depends on your needs and circumstances. It is therefore advisable to seek the advice of a qualified professional who is familiar with the legal and regulatory framework in each jurisdiction before making a final decision.
How can Huriya Private help?
Huriya Private has over 20 years of experience in the domain of corporate structuring. We have unparalleled knowledge of business practices and legal requirements in the UAE, an international network of contacts, and a deep understanding of the needs of modern-day high-net-worth clients and international businesses.
We can advise you on the best foundation regime for your objectives and guide you through the incorporation process to ensure that it is fully compliant with all local laws and regulations. If you need help with this or any other immigration, financial or corporate structuring issue, please don’t hesitate to contact us at info@huriyaprivate.com, and we will be happy to help.
