DIFC Foundations

In our practice, we encounter requests not only for the creation of investment funds but also for funds aimed at protecting the personal assets of beneficiaries. In Dubai, this type of fund is called a “Foundation.” The operation of Foundations within the Dubai International Financial Centre (“DIFC”) is governed by the DIFC Foundations Law №3, introduced in 2018.

The purpose of the Law is to provide flexibility in succession planning, ensure the smooth transition of businesses from the founders to the next generation, and facilitate wealth structuring for families. The law was developed based on similar foundation regulations from Liechtenstein, Jersey, Guernsey, and the Netherlands.

The DIFC stands apart from other UAE zones as it has an independent judicial system based on common law, a global financial exchange, a large business community, and offers maximum flexibility to reflect the founder’s wishes. This makes setting up a DIFC Foundation particularly attractive for those focused on asset preservation, flexible management of private capital, and legacy planning.

Definition of a DIFC Foundation: A Foundation is an independent legal entity to which the founder transfers assets for the preservation of family wealth. It is managed by a council in accordance with its charter and internal regulations.

Key features of a DIFC Foundation:

• It has a charter that defines its objectives, description, duration of operation (unlimited by law), and requires the council to adhere to it.
• Information about the founders, council members, and beneficiaries is confidential; the Foundation is not obligated to disclose information to beneficiaries unless specified in the founding documents.
• Founders can choose arbitration to resolve administrative disputes.
• Asset protection from creditors and family members: the Foundation’s assets are legally separated from those of the founder.
• It allows for the conversion of a company into a Foundation and redomiciliation (DIFC Foundations can be transferred into or out of the jurisdiction, serving individuals with international assets).
• Improper decisions regarding the Foundation’s assets can be corrected by the DIFC court.
• Real estate ownership: A Memorandum of Understanding between DIFC and DLD allows Foundations to invest in and own real estate in Dubai (outside of DIFC but within the emirate).

This means that if real estate is transferred into the ownership of a Foundation, it will no longer be subject to inheritance laws; however, the founder can retain control over it through the council. The DLD charges a 4% fee based on the property’s value upon transfer. However, if an individual who is a beneficiary transfers property to the DIFC Foundation as a founder, this transfer may be considered a “gift” transaction and could be subject to a reduced fee of 0.125% of the property value (at DLD’s discretion).

DIFC Foundations can directly hold shares in companies within JAFZA and DMCC. Foundations can also be used for charitable purposes.

The process of establishing a DIFC Foundation:

1. Preparation of documents for the founder, council members, and guardian.
2. Drafting of founding documents.
3. Preparation of a registered address for the Foundation (an office is not required; this can be the address of the registered agent).
4. Submission of documents to the Registrar and waiting for registration.
5. Transfer of assets.
6. Opening of a bank account.

For more information, please contact us at vl@luryelegal.com