The concept of a Trust existed in ancient Roman and Greek law and was further developed in the 12th Century England to shield assets in favor of the Donor and their heirs.
The wealthy have always used Trusts to shield their assets from the taxman, which was not there original purpose and thereafter, the taxman has worked tirelessly to reduce the tax saving benefits. The true benefits of trust arrangements lies in asset protection and the assurance your wealth end up in the hands of your beneficiaries.
Governmental intervention to raise increasing levels of tax and win votes, has reduced the popularity of trusts as an asset protection tool as attacking the ‘rich’, who have the money, is a vote winner.
If you and your family hold above average wealth, you have a “target on your back” and this will not get any easier in years to come.
‘A Foundation is a company,
similar to a Trust in concept,
set up to protect assets.’
If your assets make up a large amount of your personal wealth and are located around the world a UAE Foundation shields assets while offering a high degree of privacy.
Assets transferred, cease to be the property of the Founder and are therefore no longer subject to infringement by third parties (e.g. creditors, former spouses) or heirs.
We work with individuals, families, family offices and family-run businesses to protect and structure your assets.
What is a foundation?
It is a legal entity created by the founder who determines its purpose and gives his assets. These assets become independent from the private assets of the founder.
Differences between a foundation and a trust
Foundations are similar to trusts when it comes to the custody and protection of assets, however, they have completely different legal structures. The most important aspect is that the foundation is an independent legal entity that owns assets independently. The foundation satisfies the needs of its founder in asset protection, but at the same time retains a high level of control.
How is the foundation organized?
The foundation is a hybrid form of organization, resembling an ordinary company and a trust, they combine mechanisms of both structures, however they are quite different. After creation, assets of the founder are transferred and the legal ownership passes to the foundation. The uniqueness of foundations lies in the fact that they have no shareholders or members. At the same time, the foundation owns assets on its own behalf but in the interests of beneficiaries.
Foundations are not used as trade or commercial structures, however, the foundation can own companies that are used to reach the founder trading and investment objectives. Activities of foundations are regulated by the charter and bylaws, bylaws being strictly confidential.
Advantages of the foundation
Foundations provide for a mechanism of consolidating family holdings of various assets into a single supreme holding structure. The use of the foundation to keep family assets, be it business interests, real estate, digital assets, financial investments or any other assets, allows legalizing very clear instructions on the transfer of assets upon inheritance.
The transfer of ownership of all assets consolidated within the foundation structure upon inheritance is economically beneficial compared to the complex process of separate and individual transfer of a wide range of assets. Clear wishes set out in the charter and bylaws makes the inheritance procedure much less complicated and helps to avoid various common problems that arise after the death of an older family member.
Creation of the foundation provides for a much higher degree of confidence and comfort that the assets will be distributed in accordance with the wishes of the founder, and the foundation will continue indefinitely, even after their death.
Tax
In terms of tax benefits, Foundations in the UAE are generally tax-exempt organizations. They do not have to pay any tax on income, capital gains or profits generated within the UAE. Additionally Foundations benefit from an exemption and income is not subject to corporate tax in the UAE, they do not impose withholding taxes on dividends, interest, or royalties paid to non-residents.
The Popularity Of Foundations In The UAE
Foundations have proved to be extremely popular since their introduction in the UAE in 2017. There are now over 2,500 Foundations established across the UAE’s freezones.
UAE Welcomes Investors
Although there are a number of factors behind their popularity, the success of Foundations should be viewed in the context of wider developments. Over the last ten years, the UAE has made significant strides in becoming a recognized wealth management center. A large part of its success in attracting and retaining regional and international capital has been the legislative framework within the UAE’s financial freezones. More recently, government policy during and after the Covid pandemic has been widely credited with attracting the internationally mobile to the UAE, bringing with them additional capital and investment.
The Role Of The Freezones
The UAE is a federal state made up of seven Emirates, the two most well-known are Abu Dhabi and Dubai. Laws are made at both Federal and Emirate level and is largely a civil law construct. However, within the Emirates of Abu Dhabi and Dubai, specific areas of land have been carved out creating three of the more developed financial freezones in the UAE: Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM) and Ras Al Khaimah International Corporate Centre (RAK ICC). All have their own distinct legal systems based on common law (with DIFC & RAK ICC heavily influenced by English law and ADGM adopting English law with amendments and additions).
The financial freezones have been at the forefront of changing the legal landscape for wealth management. For example, the DIFC introduced a Wills Service Centre in 2015 allowing non-Muslim expatriates to draft wills with freedom of testamentary disposition. Outside the freezones, Abu Dhabi has introduced a wills office for non-Muslims with similar flexibility. A large part of the rationale for such rules is to give expatriates more comfort when investing in the UAE.
Living In The UAE
Changes have also been introduced in recent years to create a more appealing environment for residents to live and work. The UAE’s management of the Covid pandemic has also been widely applauded and has contributed to the influx of newcomers to the country.
Notable changes include:
- Cohabitation between non-married couples is now permitted, having previously been illegal;
- Divorces for expatriate couples taking place in the local courts may be governed by the laws of the parties’ nationalities;
- The visa regime has been significantly amended with the range of residency visas available increased to include more property ownership options and a longer term “golden visa” which is valid for up to 10 years.
Such measures have added to the appeal of the UAE to international expatriates and has played a role in creating an environment in which Foundations have thrived.
Foundations In The UAE
Foundations can now be established in three different freezones in the UAE: ADGM, where the UAE’s first Foundation Regulations came into force on 16 August 2017; DIFC, which introduced its Foundations Law on 21 March 2018; and Ras al Khaimah International Corporate Centre (RAK ICC), through Regulations introduced on 15 December 2019 (UAE Foundations). Since their introduction, UAE Foundations have been used by local and international families and individuals to hold a wide range of asset classes with the key drivers being wealth management, succession planning and asset protection. We have also seen UAE Foundations utilized for a wide range of purposes including family business succession; asset consolidation; real estate ownership; philanthropic purposes; employee incentives schemes and co-investment.
It is also important to note that the UAE has recently introduced a Federal Trust Law, one of the provisions of which confirms that the laws of the financial Freezone shall apply to trusts set up in those jurisdictions. Whilst not explicitly dealing with Foundations, by extension the Federal Trust Law lends support to the view that the integrity of the DIFC and ADGM legal systems will be respected in proceedings relating to foundations as well as trusts.
Key Features Of UAE Foundations
UAE Foundations are best thought of as a hybrid between a trust and a company as they share features of both. The key from a succession perspective is that a Foundation exists in its own right so unlike a company there are no shares which pass on death of the owner(s).
All of the UAE regimes are flexible and allow the Founder and their legal representatives to tailor the Foundation to meet the needs of the individual Founder and their family. This can include, for example, the Founder retaining an appropriate degree of control and the ability to benefit from the assets during their lifetime, which is particularly useful for family businesses. The Foundation architecture, which allows Founders to sit on the Foundation’s council (the council makes decisions on behalf of the Foundation) during their lifetime is particularly appealing. The legal architecture also allows for appropriate governance to be introduced. One of the most important roles is that of Guardian, which is a person (or committee) who can be appointed to oversee the council and who is usually given powers to veto certain decisions of the council.
Of course, there are differences in the three UAE Foundation regimes, which may make one more attractive than the other as a jurisdiction of choice depending on the assets to be held, the purpose of the Foundation and individual preferences. However, most of the broad principles are similar. UAE Foundations must be managed in accordance with their constitutional documents, namely the Charter and By-Laws. The Founder can either be an individual or legal entity, and the council can be situated anywhere in the world (although often tax or economic substance rules will drive this decision). Under all the UAE Foundation regimes, access to information on the constitutional documents of the Foundation is limited to both the public and to the Foundation’s beneficiaries.
| Description | ADGM | DIFC | RAK ICC |
| Law | The Foundations Regulation of 2017 | The Foundations Law of 2018 | RAK ICC Foundations Regulations of 2019 |
| Currency | United States Dollar (USD) | United States Dollar (USD) (statutory) UAE Dirham (AED) (administrative) |
|
| Legal System | Legal systems and courts are based on Common Law principles. Largely based on the laws of England and Wales. | ||
| Advantages | • Tier 1 international financial center • No tax filing and a comprehensive tax treaty • Possibility to migrate from overseas • Strategic location in the Middle East and towards emerging high-growth markets |
• Comprehensive global network of tax treaties • No requirement to file or audit accounts or tax returns • Possibility to migrate to RAK ICC from overseas • Strategic location in the Middle East and towards emerging high-growth markets |
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| • No requirement to file or audit account, unless requested by the Registrar • Low set-up and running costs • Digital registration process and quick processing |
• Comprehensive global network of tax treaties • No requirement to file or audit accounts or tax returns |
||
| Minimum Assets | Any property of a minimum value of USD 100 | ||
| Request for Local Representations | Must maintain a registered office in the Freezone at all times. (may use the Registered Agent’s address) | ||
| Founder | 1 or more individual or legal entity | ||
| Council Members | At least two (2) members (individuals or a legal entity); Not UK resident: Founder may be appointed as councilor | ||
| Guardian | Optional; Mandatory if no surviving founder (individual or legal entity) | ||
| Beneficiary/ies | Individual(s) or legal entity(ies) (incl. Founder) | Not mentioned | |
| Registered Agent | Optional | Mandatory | |
| Public Information | • Name and address of Foundation • Name and address of the founder; • Foundation charter; and • Registered agent |
Limited information related to the management of the Foundation is available to “Person(s) with Sufficient Interest” upon request to the Registrar. All other information is treated as private and shall not be disclosed unless so required by relevant authorities. |
|
| Councilor’s name and address | |||
| Private (Confidential) Information | • 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) |
||
| Name and address of each councilor | |||
| Information | The above information is available upon request to the Registrar | The register is open for public inspection (against a fee) | The Registrar is not open for public inspection |
Foundations As Part Of Succession Planning
One of the key advantages of a Foundation over a Trust is its ability to hold and register assets in its own name. This appeals to many families in both the GCC and wider world as there is no need to transfer assets to unknown third-party trustees in foreign jurisdictions.
Foundations And UAE Real Estate
One area where UAE Foundations have attracted particular attention is real estate. A significant benefit of UAE Foundations is that they are permitted to own real estate located in the UAE (as well as shares, bank accounts and investment portfolios). Unlike overseas Trusts, UAE Foundations are (with variances in the different Emirates) recognized by the Emirate level Land Departments, meaning they have become the succession vehicle of choice for local real estate.
Foundations As Part Of International Structuring
We have advised on structures where the UAE Foundation is used as an integral part of an international structure. For many clients the private trustee foundation structure is more palatable than the additional layers typically involved with a private trust company structure.
Costs And Taxation Of UAE Foundations
Foundations benefit from a favorable tax environment in the UAE; there is 0% personal income tax and access to a wide network of ‘Double Taxation’ treaties. Although a corporation tax of 9 % (or up to 15 per cent for large multinationals) however does not directly affect Foundations which are not trading and will generally receive passive income.
Foundations have relatively low administrative costs under all three UAE Foundation regimes.
Looking Forwards
Although some of the popularity of Foundations may be explained by other factors such as satisfying existing, pent-up demand for effective succession structures in the Middle East and the emphasis that Covid and a series of high profile local estate administration matters has placed on the need for families to structure and plan for the succession of their wealth, we believe that moving forwards the uptake of Foundations will continue to grow and they will “compete” alongside other, perhaps more widely understood structures, such as Trusts (including Federal Trusts). UAE Foundations have certainly been a welcome addition to the wealth structuring landscape of the region and will continue to assist local families and investors into the UAE in structuring their affairs to meet with their wishes.
SPV – Special purpose vehicle UAE – 2025 Guide
A Special Purpose Vehicle (SPV) is a specialist type of holding company that provide advantages for businesses and business owners. As SPVs are distinct and separate legal entities, SPVs carry their own legal status, they’re often seen as ‘bankruptcy-remote’: the SPV can continue to operate even if the parent company goes bankrupt.
An SPV might be just what you need to separate assets, optimise holding structure, and more. SPVs are a reliable and robust business framework to help take your foundation to the next level. Over the years there’s been a distinct rise in the use of SPVs and it’s easy to understand why. They not only provide legal and financial protection for the parent company, but they’re (relatively) easy to set up, they have direct ownership of specific assets, and can provide tax mitigation.
SPVs can be used for unlawful activity so need to be managed expertly and diligently to ensure strict compliance.
What is a special purpose vehicle (SPV)?
A Special Purpose Vehicle is a legal entity created for a specific purpose, such as isolating financial risk and holding assets. SPVs are commonly established in the UAE by a wide range of entities, including private clients, corporations, and investment funds. Private clients typically use SPVs as UAE Holding Companies to protect personal assets from creditors, achieve tax efficiency, or facilitate estate planning.
For instance, an SPV might be used as a property holding company or a holding company for a business, with the shares of the SPV transferred to a trust or directly to heirs, which may reduce tax liability and simplifying the transfer process. It is created as a subsidiary, which is protected in case the parent/holding company goes bankrupt and considered isolated in case the same happens in reverse to those legal entities.
Typically launched as Limited Liability Companies, SPVs are owned by the foundation, each SPV has its own legal status and its own assets and liabilities, so can continue operating even if the parent company has issues.
Managing portfolio’s and underlying investments in different jurisdictions can be challenging, as each country has its own rigid rules and processes to follow, country-specific regulations and compliance can vary greatly, and be dependent on asset type. Controlling assets in a SPV in the UAE simplifies this situation and reduces complexities.
SPV’s can manage asset transfer of asset holdings, and ring-fencing certain assets, such as intellectual property rights, to limit liability and isolate financial risk.
The commercial activities of SPV’s in the UAE can be completed through the Abu Dhabi Global Market (ADGM), the Dubai International Financial Centre (DIFC) or Ras Al Khaimah International Corporate Centre (RAK ICC)
Benefits of setting up a Special Purpose Vehicle (SPV)
SPVs offer business owners and asset holders greater freedom while allowing for the separation of financial and legal risk through this ownership structure. The advantages of an SPV include the following:
- Tax Residency Certificate to benefit from the UAE Double Tax Treaty network.
- SPVs use an agents (service providers) to manage the SPV and to provide the registered office address.
- SPVs don’t need their corporate documents attested to create this new business structure.
- There are a variety of legal structures and multiple classes within SPV classes.
- Common Law jurisdiction applies, and they are regulated by independent courts, Registration Authority, and Financial Services Regulatory Authority, giving them added credibility, consistency, reliability, and a stable legal environment.
- SPVs offer a best-in-class risk-based independent regulatory framework.
- SPVs also attract added tax benefits, which include 0% direct tax, 0% withholding tax, no restriction on repatriation of capital, and no foreign exchange controls.
Reasons for using an SPV company
There are many reasons to incorporate an SPV, including:
- asset purchase or acquisition – thereby ensuring the asset is treated, and remains, separate and can be sold, mortgaged or refunded separately.
- property– again ensuring the property is considered independently owned. There are also tax benefits for using an SPV for holding property.
- risk management – lowering the risk that the special objective would bring to the parent company.
For different assets you may have several SPV’s one may hold property, another digital assets (crypto), or a trading company and a fourth, intellectual properties or royalties, once investment goals have been reached, the SPV can be closed not effecting other interests
Benefits summary
- Tax Benefits: The company enjoys 0% taxation on dividends and qualifying income and has access to the DIFC’s network of double taxation treaties.
- Privacy Protection: There is no public register of beneficial owners, and respects proportionate privacy. A Foundation can be used to enhance privacy, with only the Foundation’s basic being public.
- Legal Certainty and Efficiency: Operating under the English common law-based legal system, the companies benefits from more flexibility and innovation than other UAE free zones.
- UAE Residence Visas: In certain cases, the company can issue UAE residence visas.
Disclaimer: The content of this article is intended to provide a general guide to the subject matter and must not be used as legal or tax advice.
CornerStone has experience with foundations and their use of SPV’s to assist in Asset Protection and tax mitigation, we support you through every stage, offering an end-to-end approach across a wide variety of sectors and jurisdictions.
Multiple SPVs mean an exponential increase in the required accounting, administration, and management of your ongoing operations. You also need to address regulatory and compliance needs and ensure strong due diligence. This can very quickly become complex, particularly when there’s more than one jurisdiction involved.
Working with a provider who is familiar with your chosen jurisdiction, have strong expertise in SPV administration across various different sectors, and know how to get them set up as efficiently and effectively as possible can be hugely advantageous for your business.
Advisory Services
We have significant experience providing advice to families and individuals on wealth structuring and business succession planning. We can advise and create a Foundation to protect your assets and family, working with a team of English speaking professionals based in the UAE.
Company Registration
Obtain the required license and registrations to start operating while adhering to Freezone laws and regulations. We will assist with the application process and in acquiring the required registration certificate.
Appointment as a Registered Agent
We can provide Registered Agent services when appointed for a Foundation. We have an offices in the all Foundation Freezones.
As registered agents, we can:
1. Register the Foundation and provide the registered address.
2. Prepare the incorporation documentation.
3. Submit the By-laws.
Appointment as Council
We can register as your appointed Council fulfilling the wishes of the Founder.
Accounting services
From bookkeeping to timely statutory reporting, our accounting services keep you compliant, give you an accurate and transparent insight into your company’s financial well-being.