DIFC Foundations

What is the DIFC?

The Dubai International Financial Centre (DIFC) is a financial free zone overseen by three independent authorities: the Dubai Financial Services Authority, the Dubai International Financial Centre Authority and the DIFC Courts.

The DIFC follows international best practice and is recognised by major financial centres as a robust, highly regulated jurisdiction. It operates under a common-law framework rather than Sharia law.

What is a DIFC Foundation?

A DIFC Foundation is a legal entity that can be established within the Dubai International Financial Centre, a highly regulated, independent jurisdiction within the UAE. Its common-law framework allows considerable freedom in structuring a Foundation’s management and procedures.

Features of a DIFC Foundation

• A Foundation is similar to a company in that it is a legal entity that can hold assets and sign contracts, but it does not issue shares or have shareholders.
• A Foundation is not owned by anyone. It is set up to fulfil a purpose: managing assets for its beneficiaries.
• A council of at least two members is responsible for managing the Foundation’s assets.
• An optional guardian may oversee the Foundation and ensure that the council carries out its functions in accordance with the founder’s wishes.

Key roles

Founder: the individual who provides the initial assets when establishing the Foundation.

Council: the managing board responsible for carrying out the Foundation’s stated purpose.

Guardian: an individual or company charged with ensuring that the council carries out the Foundation’s stated purpose.

Beneficiaries or qualified recipients: entities or individuals designated to benefit from the outcome of the Foundation’s activities.

Default recipient: an entity or individual designated to manage the Foundation’s residual assets if it is wound up. This safeguards suitable distribution when beneficiaries cannot be found or the Foundation no longer meets its original mandate.

What is a Foundation used for?

A DIFC Foundation allows founders to manage and protect assets within a robust governing framework. It can support succession planning, family-wealth preservation, wealth management and tax planning within a recognised and confidential governance structure. Foundations can also be created for charity and other philanthropic purposes, providing an effective vehicle for managing and distributing donations.

Further benefits

• The Foundation is a different legal entity from its founder. Assets transferred to it are therefore ring-fenced from personal liabilities the founder may incur later.
• A DIFC Foundation can be registered as tax-transparent, meaning it would not be required to pay UAE Corporate Tax. Liability would fall to the beneficiaries, who would not be subject to personal income tax if they were UAE tax residents.
• Only the Foundation’s name and registered office are visible to the public; all other details remain private.
• A Foundation continues to manage and distribute assets after the founder’s death.

Legal obligations

A DIFC Foundation must:

• include the word “Foundation” in its entity title, while generally avoiding “Dubai” or “UAE”;
• obtain a DIFC licence reflecting its intended activity;
• draw up a public charter declaring its purpose, roles and structure;
• draw up private by-laws detailing decision-making rules, asset management and governance;
• file an annual confirmation statement;
• file an annual data-protection return;
• complete FATCA and CRS reporting; and
• prepare annual financial statements to IFRS standards.