Ever since its introduction in 2017, foundations have increasingly become the preferred choice for wealth management and family succession planning in the UAE. The Abu Dhabi Global Market’s (ADGM) foundations regime is the first of its kind in the region and offers an attractive alternative for high-net-worth individuals, families and corporate bodies looking to set up trust structures by taking advantage of ADGM’s favourable tax environment, flexible legal framework, and strong client confidentiality policies. This article will provide a general overview of the foundations regime presently operating in ADGM.
What Are Foundations?
A foundation is a type of legal entity that combines the characteristics of a private company and a trust structure. They are established for beneficial purposes by a ‘founder’ to achieve a number of goals, including private wealth management and preservation, succession planning, tax planning, charitable institutions, asset protection, corporate structuring and creditor protection. Foundations have their own legal personality and provide a mechanism for the consolidation of various assets into a solitary holding entity.
They can be established for an indefinite period of time, meaning that the death of a founder or any of the foundation’s council members will have no effect on the existence of the foundation.
Management and Governance of Foundations
A foundation is governed by its foundation charter and its by-laws. The foundation charter is a public document, but its by-laws are strictly private. A foundation must have a registered office address at all times.
A foundation must consist of a founder, at least two (2) council members (Council) and beneficiaries or designees. Unlike private companies, foundations do not have shareholders or directors to dictate its management. It is instead managed by the Council to achieve the founder’s intentions. A guardian may also be appointed to supervise the Council’s actions. Appointment of a guardian is compulsory upon the founder’s death and optional during the founder’s lifetime.
Features and Benefits of the ADGM’s Foundations Regime
Foundations in ADGM benefit from 0% corporate tax and personal income tax rates, along with access to a wide range of double taxation treaties the UAE has entered into.
The identities of the Council, the founder, and the beneficiaries are kept confidential from the public.
- Independent Legal Personality:
The ADGM foundations regime recognises the significance of safeguarding the entitlements of beneficiaries and preserving the assets of the foundation. It encompasses crucial asset protection mechanisms embedded within the regulations to shield foundation assets against bankruptcy claims, personal claims arising from divorce, and the impact of forced heirship rules.
- Virtual Office Address:
Foundations are not required to maintain a physical address as its registered office address, and virtual offices are deemed sufficient.
- Legal Environment:
ADGM’s world-class legal framework underpins the secure and flexible foundations regime. Common law is directly applicable, offering a commendable degree of legal certainty while allowing for necessary flexibility to introduce supplementary amendments to regulations.
- Succession Planning:
The process of transferring ownership of various assets, including business interests, property, financial investments, alternative assets, etc., to a foundation for the purpose of holding family assets, enables the establishment of clear, legally binding instructions governed by common law. These instructions will continue to apply to the transfer of assets upon succession.
- Islamic Succession Planning:
Foundations, if they have been established with the appropriate methods, can be Sharia’ compliant and be subject to Islamic succession laws.
In addition to ADGM, other financial free-zones such as Dubai International Financial Centre (DIFC) and Ras Al Khaimah International Corporate Centre (RAKICC) recognise the establishment of foundations.
We will explore the foundations regime in each of these jurisdictions in the next part of our series on foundations in the UAE.
Malack Elmasry – Partner
Maryam Quadri – Associate
Anirudh Sundarrajan – Associate
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