Recent developments in wealth management structures in the Middle East
It has now been over 18 months since the Dubai International Financial Centre (DIFC) Foundations Law no. 3 of 2018 came in to force on 21 March 2018 (the Foundations Law). The Foundations Law introduced a new legal entity (the foundation) which is a compelling structuring option for high net worth individuals, families and businesses.
Since the introduction of the Foundations Law, we have been advising a number of our clients on possible uses of Foundations and how to establish a DIFC foundation. In this update, we share some of the key facets of the Foundation and what's driving the appetite for them within Dubai.
What is a Foundation?
A Foundation is best thought of as a hybrid between a trust and a company in that it shares features of both.
- Like a company, the Foundation has separate legal personality, enabling it to own property in its own right.
- However, unlike a company a Foundation has no shareholder or members, being managed instead by a Council (who may in turn be supervised through other mechanisms such as the "Guardian"). The lack of a shareholder makes the Foundation an "orphan" entity, which can be particularly useful in succession planning.
- The foundation must be run in accordance with its constitutional documents namely the charter and by-laws.
- As with trusts, a Foundation can be established to achieve specified charitable or non-charitable purposes and/or to benefit individual beneficiaries.
Why choose a Foundation?
In recent years, Foundations have been introduced in one form or another across a number of the established offshore trust jurisdictions in the Channel Islands, IOM and Cayman. Whilst the laws differ slightly, one of the main reasons for introducing foundations was to provide clients with an alternative to trusts, which some clients remain uncomfortable with. Broadly, Foundations offer a consolidated ownership structure which can remain in place across multiple generations ensuring continuity of ownership and avoiding the need for cumbersome and costly probate or similar post-death administrative processes.
The Foundations Law is flexible and allows the client and their legal representatives to design the structure to meet the needs of the founder and their family. This can include the founder retaining a significant degree of control over the Foundation and the ability to benefit from the assets during their lifetime.
Foundations and Ownership of Real Estate
One particular area of interest in Foundations centres on the use of a DIFC Foundation to hold real estate in Dubai. A memorandum of understanding between the DIFC and the Dubai Land Department (DLD) was announced on 4 may 2018, which allows certain entities, (including Foundations) based in the DIFC to purchase and register real property (provided it is designated for foreign ownership) with the DLD. The ability to own land in Dubai puts the Foundation ahead of a trust as the vehicle of choice for asset holding and succession planning in respect of real estate in the Emirate.
We expect to see significant growth in the use of Foundations over the coming years.