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Comparing Trusts and Foundations in the UAE

PUBLICATIONS / Articles / 2019 / Comparing Trusts and Foundations in the UAE

Trust and foundations over the years have offered massive benefits for individuals to arrange their private affairs. It therefore isn't strange that the UAE, friendly to individuals and capital as it is, since relatively recently offer foundations and trusts in its free zones.

Foundation and trust regimes currently exist in many international financial centers, including common law/Anglo-Saxon jurisdictions that have historically relied on traditional trust structures. The UAE's relatively new solutions offer top-notch regulations based on the best global best practices.

The UAE solutions are designed for individuals, families, organisations and their professional advisors seeking to efficiently manage their private wealth, safeguard their assets and enhance their succession planning in the UAE and abroad. There is a clear regulatory framework, efficient processes process and a transparent fee structure. The intention is to provide client confidentiality while maintaining appropriate governance controls.

In this article, we compare the two most important options:

  1. The Abu Dhabi Global Market (ADGM) Foundation; and
  2. the Dubai International Financial Centre Trust.
But before we look at the comparison, we explain what a foundation is and how it differs from a trust – they are not entirely the same and have different origins.

The Foundation

A foundation is an independent legal entity which holds assets separately from the founder’s personal wealth. The Foundation shares similarities of functions and mechanisms with both a company and a trust, while not strictly considered a hybrid of the two. Trust derived from common law principles - the foundation originates from civil law jurisdictions.

A foundation is governed by its charter and by-laws, which together reflect the desires of the founder.
 
It is managed by a foundation council and may be supervised by a guardian.
The assets of a foundation are owned by the foundation in its own name and may be held directly by the foundation or consist of shares in an underlying company.
 
Foundations are being used for several reasons:

  • Wealth structuring, succession and estate planning
  • Asset protection (forced heirship rules, creditors and hostile takeovers)
  • Long term holding structure for businesses
  • Specific purposes in commercial transactions (to own certain assets or to perform particular roles)
  • Charity and/or philanthropic purposes

How a Trust differs from a Foundation

The main differences and similarities between the trust and the foundation are:

  • Shares or members: Neither have shares or members.
  • Distinct legal entity and ownership of assets: A trust is a contractual agreement and foundations forms a distinct legal entity. Foundation legally owns assets in its own name and can enter into contracts, in a trust relationship; trustee legally owns the assets and enters into contracts on behalf of the beneficiaries.
  • Use for the benefit of Beneficiaries: Optional for foundation, mandatory for trust.
  • Use for commercial purposes: Impossible for foundation (may hold shares in a commercial company though), allowed for trust.
  • Registration and lifespan: Foundation must be registered (with few exceptions) and have unlimited lifespan. Trusts are not registered often limited in time.

UAE Foundation vs UAE Trust

For the Abu Dhabi Global Market foundation (ADGM) and Dubai International Financial Centre trust (DIFC) comparison we made a handy overview:


  Abu Dhabi Global Market foundation (ADGM) Dubai International Financial Centre trust (DIFC)
Tax rate 0% corporate tax rate
 
0% corporate tax rate
 
Tax filing No tax filing
 
No tax filing
Tax treaties Comprehensive tax treaty network Comprehensive tax treaty network
Audit requirements No requirement to file or audit account unless requested by the Registrar Can issue depository certificates
Migration Possibility to migrate to ADGM from overseas Low set-up and running costs Possibility to migrate to DIFC from overseas
Registration mode Digital registration process & quick processing Possibility to morph company into foundation
Location Strategic location in the Middle East & towards emerging high growth markets Strategic location in the Middle East & towards emerging high growth markets
Local requirement Request for local representations:
Must maintain at all times registered office in ADGM (may use the Registered Agent’s address
Request for local representations:
Must maintain at all times registered office in DIFC (may use the Registered Agent’s address)
Public information Public Information (The following information is available upon request to the Registrar)
 
• name and address of foundation
• name and address of the founder
• foundation charter
• registered agent

The following information is confidential:
 • name and address of each councilor
• names and addresses of any beneficiaries
• names and addresses of guardian (if any)
• name and address of each beneficial owner of each founder which is a legal person (if any)
Public information (The register is open for public inspection (against a fee) Available data)
 
• name and address of foundation
• name and address of the founder
• name and address of each councilor
• foundation charter
• registered agent

The following information is confidential:
 • names and addresses of any beneficiaries
• names and addresses of guardian (if any)
• name and address of each beneficial owner of each founder which is a legal person (if any)
 

Did you find this interesting? Do you still have questions about what a UAE foundation or a trust could do for you? Do not hesitate to contact us.





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