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MEDIA / NEWS / 2018 / Comparison between Trusts and Foundations in the UAE

Comparison between Trusts and Foundations in the UAE

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

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.

Abu Dhabi Global Market foundation (ADGM) and Dubai International Financial Centre trust (DIFC) Comparison

  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)

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