Episode 7 – UAE Foundation Regimes: Which one to choose?
In our seventh episode, Legal Director Kath Zagatti and Managing Partner Yann Mrazek discuss the key differences between the three UAE Foundation Regimes.
1. Foundation regimes available in the UAE – Since when?
A Foundation regime was first introduced in the UAE in the Summer of 2017 in ADGM – the first of its kind in the larger Middle East. The DIFC, and eventually RAK ICC, introduced their own regimes.
So these are three domestic foundation regimes to chose from:
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- ADGM on 16 August 2017;
- DIFC on 21 March 2018; and
- RAK ICC on 15 December 2019.
2. What are the main differences between these regimes?
The three regimes are similar in most aspects, with few exceptions :
Key Differences:
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- Possibility to morph from Company to Foundation
- Foundation with exclusively charitable purposes
- Council Members: individuals and/or entities
- Privacy and disclosure of public information
- Holding properties
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In the DIFC and RAK ICC, a company can be morphed into a Foundation, whereas in ADGM this is not possible. So in this respect, DIFC and RAK ICC have a flexibility advantage over ADGM.
Another critical difference is that both the DIFC and RAK ICC regimes accept Foundations to have purposes that are exclusively charitable, whereas this is not acceptable for an ADGM Foundation.
With respect to Council Members, both DIFC and RAK ICC accept both Council Members to be corporate entities, whereas as per ADGM rules, at least one Council Member must be an individual.
Privacy is increasingly becoming a key factor when considering structures of any kind, and UAE foundation regimes differ here to. RAK ICC is the only Registrar not open for public inspection. Only authorized persons will be able to have information about the members of the Foundation.
ADGM is a public registrar, but the data accessible is limited to name and address of the Foundation; name and address of the Founder; Foundation charter; and the Foundation’s Registered Agent.
DIFC’s approach is similar to ADGM save for the name and address of the Council Members of the Foundation, which are public.
It is important to point out that privacy rules are not all; practical approach to these is what matter. e.g. The privacy objective can still be met in any of the three Foundation regimes by using a nominee Founder and/or professional Council Members, as discussed in our previous Podcasts.
3. How do assets to be held by the Foundation influence the choice of Foundation regime?
The 3 regimes are very similar when it comes to holding of assets, i.e. the three types of Foundation can own shares in companies (although few Registrars may have some restrictions if the Foundation is to directly hold the shares); cash, stocks, portfolios and etc.
Also, all three types of Foundations can hold real estate properties, in the UAE and abroad; however, when it comes to UAE properties, one should first consider where the properties are located.
Per current practice, and the Memorandums of Understanding in place, Land Departments across the UAE have different approaches when registering properties with Foundations.
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- For properties in Dubai, a DIFC Foundation must be chosen;
- For properties in Abu Dhabi, a ADGM Foundation must be chosen;
- For properties in RAK, a RAK ICC Foundation must be chosen.
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We would expect that over time, Land Departments become increasingly more familiar with Foundations and relax their practice, i.e. accept Foundations to own properties in different Emirates, similarly to the practice with respect to companies.