DIFC Foundation Formation
The UAE has emerged as a thriving hub for investors and entrepreneurs due to its open market and business-friendly regulations. One such avenue for investors is foundations. Foundations are special operations that protect assets such as family businesses, real estate, and intellectual property.
The UAE Foundations Law, enacted in 2018, provides a comprehensive legal framework for establishing and operating foundations in the UAE. The law defines the process for foundation formation, governance structure, and requirements for registration. It also specifies the permissible activities and objectives that a foundation can undertake, ensuring compliance with local regulations and societal needs. According to the guidelines outlined in the law, foundations in the UAE are separate legal entities that serve philanthropic or charitable purposes.
Setting up a foundation in the UAE, particularly in the Dubai International Financial Centre (DIFC), offers numerous advantages for individuals or entities seeking to establish philanthropic or charitable structures. In this blog, we’ll cover the process of setting up a foundation, including ways to legally protect your DIFC company.
Why You Should Set Up a Foundation in the DIFC
The DIFC provides a favorable legal and regulatory framework, making it an ideal destination for foundation formation. Let’s take a look at what this Free Zone has to offer investors and entrepreneurs alike:
The DIFC provides a high degree of flexibility in structuring and operating foundations. This flexibility ensures that your foundation can efficiently address specific social or charitable causes. Individuals or entities can tailor the foundation’s governance structure, objectives, and activities to align with their philanthropic vision.
Foundations established in the DIFC benefit from robust succession planning options. The DIFC Foundations Law allows for appointing a guardian, protector, or enforcer to ensure the foundation’s continuity and adherence to its objectives, even without the founder or key individuals involved.
Setting up a foundation in the DIFC allows you to retain control over your assets. The foundation structure enables you to transfer assets to the foundation while maintaining influence and involvement in its management and distribution. This ensures that your philanthropic efforts are aligned with your long-term vision and values.
Ownership of Real Estate Assets in Dubai
One notable advantage of establishing a foundation in the DIFC is the opportunity to hold and manage real estate assets in Dubai. The DIFC provides a platform for owning and operating real estate, allowing foundations to invest in properties and generate income for charitable purposes.
0% Corporate Tax Rate:
The DIFC offers a tax-efficient environment for foundations. Companies operating within the DIFC free zone, including foundations, are subject to a 0% corporate tax rate. This tax advantage allows foundations to maximize their financial resources and allocate more funds toward philanthropic activities.
Private Arbitration of Disputes
The DIFC provides a well-regarded legal framework and a separate court system that follows English common law principles. This offers a reliable mechanism for resolving any potential disputes that may arise, ensuring a fair and efficient resolution process through private arbitration.
Recognition of Foreign Foundations
The DIFC acknowledges the existence and recognition of foreign foundations, making it an attractive jurisdiction for individuals or entities with established foundations elsewhere. Foreign foundations can leverage the benefits of the DIFC’s legal and regulatory framework to expand their philanthropic activities or establish a presence in the UAE.
The Process of Foundation Setup in DIFC
Despite the UAE making continuous strides to streamline setting up a company in DIFC, or foundation, you’ll still need to be familiar with the procedure. Here’s what you’ll need to know:
Register Your Foundation
The first step in setting up a foundation in the DIFC is to register it with the appropriate authorities. You must submit the necessary application forms, including details about the foundation’s purpose, activities, and proposed structure. The registration process requires the foundation to have a registered office within the DIFC, and you may need to engage with a corporate service provider to fulfill this requirement.
Prepare the Documentation
To complete the foundation setup, you will need to prepare specific documentation. This typically includes the foundation charter, which outlines the foundation’s objectives, governing principles, and rules for operation. Additionally, you may need to provide a list of the foundation’s beneficiaries, details about the foundation’s endowment, and the names of the foundation’s founders and initial council members.
Submit the By-Laws and Relevant Documentation
Once the documentation is prepared, it must be submitted to the DIFC authorities for review and approval. This includes the by-laws that govern the foundation’s internal affairs, such as decision-making processes, appointment of board members, and distribution of funds. The DIFC authorities will assess the compliance of the by-laws with the relevant regulations and legal requirements.
Navigate the Legal Hurdles and Consult with Professionals
Navigating the legal requirements of setting up a foundation in the DIFC can be complex. It is advisable to seek the assistance of experienced professionals such as corporate service providers or legal advisors specializing in foundation formation. They can guide you through the process, help you understand the legal hurdles, and ensure compliance with all necessary regulations.
The Minimum Capital Required for DIFC Foundation Formation
While the specific capital requirements may vary depending on the nature and scale of the foundation, the DIFC typically imposes a minimum capital requirement of AED 100,000 (approximately $27,227 USD) for foundation formation.
It is important to note that the minimum capital requirement for a DIFC foundation is not a fee but rather an initial capital that needs to be injected into the foundation. This capital can be in cash, movable or immovable assets, or a combination thereof. The purpose of this requirement is to demonstrate the financial viability and commitment of the foundation to its charitable activities.
The minimum capital requirement serves as a financial foundation for the foundation’s operations, allowing it to carry out its philanthropic endeavors effectively. It provides a level of assurance to the regulatory authorities and stakeholders that the foundation has the necessary resources to achieve its stated objectives.
How MSZ Consultancy Can Help!
Setting up a foundation in the DIFC free zone can be a daunting task, especially for those unfamiliar with the region’s legal and regulatory frameworks. However, MSZ Consultancy’s profound knowledge and extensive network in the UAE enable them to guide clients seamlessly through the entire formation process.
Whether it’s company formation in DIFC free zone, starting a DIFC holding company, or ensuring compliance with local laws, our expert consultants provide comprehensive support at every step.