PRIVATE CLIENTS
FOUNDATIONS
IN THE UAE
FOUNDATIONS
IN THE UAE
A foundation is a legal entity established to manage property and assets for the benefit of its beneficiaries and the foundation itself.
Foundations are primarily used for:
Tax efficiency
- Possibility to select a tax regime
- Eligibility for corporate tax benefits
Confidentiality
Beneficiary details are not publicly disclosed
Asset protection
Assets are separated from the beneficiary and protected from creditors
Succession
Enables effective succession and inheritance planning
Flexibility
May be established to manage various types of assets
International recognition
Foundations are recognized internationally, facilitating cross-border transactions
FOUNDATION: OVERVIEW
Management structure*
** Assets may also be transferred to the Foundation by third parties, in line with the Foundation’s governing documents
- The Founder establishes a Foundation and transfers its assets** into it
- Beneficiaries can be an individual, or a group of individuals, or a legal entity that receives income from managing the Foundation’s assets; contingent beneficiaries (secondary and tertiary) may be appointed in the event of death / liquidation of primary beneficiaries
- The Council’s role is to manage the Foundation and its assets for the benefit of its beneficiaries in accordance with the Foundation’s internal documents
- The Guardian oversees the Council’s decisions (negative control) and has the right to read accounting records and other Foundation documents
** Assets may also be transferred to the Foundation by third parties, in line with the Foundation’s governing documents
Organizational structure
Characteristics
- A non-profit structure for managing the founder’s separate assets without forming share capital
- Founders may be both individuals and legal entities; co-founding by multiple persons is not permitted, unless the founders are spouses
- Assets are transferred to the Foundation for management for the benefit of the beneficiaries
- Beneficiaries receive assets from the Foundation according to the terms set out in its incorporation documents
Key advantages
- Assets are protected through legal separation from the founder’s assets
- Any person, including the founder, may be a beneficiary
- Secondary and tertiary beneficiaries may be appointed in the event of death / liquidation of primary beneficiaries
- Assets can be transferred by both the founders and third parties
- Tax advantages (fiscal transparency)
- Assets settled into the Foundation may be located both in the UAE and abroad
KEY OBJECTIVES OF ESTABLISHING A FOUNDATION OR TRUST
-
Asset protection -
- Confidentiality of the Founder / beneficiaries
- Ability to maintain control via the Guardian in the absence of direct ownership of assets
FOUNDATIONS, COMPANIES, TRUSTS: STRUCTURE COMPARISON
ESTABLISHING AND RUNNING A FOUNDATION
Approximate amounts of fees (duties) applicable in the free zones are indicated.
TAXATION OF FOUNDATIONS AND THEIR BENEFICIARIES
- 9% corporate
tax rate9% - 0% applicable if the foundation qualifies
as a Qualifying Free Zone Person (QFZP)0%
The law introduces the concept of a family foundation.
Qualifying family foundations are eligible for transparent tax treatment at the level of beneficiaries (fiscal transparency).
Criteria for transparent tax treatment:
Qualifying family foundations are eligible for transparent tax treatment at the level of beneficiaries (fiscal transparency).
Criteria for transparent tax treatment:
- The foundation is establishedfor the benefit of certainor identifiable individuals or a public benefit entity, or both.
- The foundation’s primary activities are receiving, holding, investing, disbursing, or managing assets related to savings or investments.
- The foundation does not engage in any activity that would represent business or entrepreneurial activity if conducted directly by its founder or any of its beneficiaries.
- The foundation’s main or primary purpose is not corporate tax avoidance.
- 0% corporate
tax rate0% - No personal income tax
for beneficiaries (individuals)0% - Companies within a family foundation are eligible to apply for fiscally transparent treatment if applicable criteria are met*
- An application must be submitted to obtain tax transparency. Foundations must also file annual accounts and tax reports to confirm ongoing eligibility*
OTHER TAX ASPECTS OF CREATING A FOUNDATION
ESTABLISHING A FOUNDATION
Tax implications may arise under controlled foreign company (CFC) rules in the countries of tax residence of the Founder, members of the Foundation Council, and beneficiaries of the Foundation.
The Foundation is facing the risk of being recognized as a tax resident in the country where it has its place of management.
Tax implications may arise under controlled foreign company (CFC) rules in the countries of tax residence of the Founder, members of the Foundation Council, and beneficiaries of the Foundation.
The Foundation is facing the risk of being recognized as a tax resident in the country where it has its place of management.
TRANSFERRING ASSETS TO THE FOUNDATION
Tax implications may arise for individuals or legal entities in the countries of tax residence of individuals or the location of assets, as a result of transferring assets to the Foundation and / or subsequent payment of income from the legal entity level to the Foundation level.
For assets, it is necessary to consider ownership, type, country of location and method of transfer in order to assess tax implications for individuals or legal entities.
Tax implications may arise for individuals or legal entities in the countries of tax residence of individuals or the location of assets, as a result of transferring assets to the Foundation and / or subsequent payment of income from the legal entity level to the Foundation level.
For assets, it is necessary to consider ownership, type, country of location and method of transfer in order to assess tax implications for individuals or legal entities.
RECEIVING PAYMENTS FROM THE FOUNDATION
Founders and beneficiaries may incur liabilities in the country of tax residence, requiring reporting and payment of taxes on income received from the Foundation.
Calculation of the tax base for beneficiaries must be done in their country of tax residence.
Founders and beneficiaries may incur liabilities in the country of tax residence, requiring reporting and payment of taxes on income received from the Foundation.
Calculation of the tax base for beneficiaries must be done in their country of tax residence.
HOW CAN BAONE HELP
- Advising on wills and foundationsAssistance in selecting the management structure and the method of transferring assets to heirs
- Setting up a foundationSupport in drafting necessary documents and assistance with establishing a foundation in the jurisdiction of your choice
- Tax planningIdentification of tax benefits available to beneficiaries to minimize overall tax burden
- Accounting supportPreparation of accounts and tax reports for the foundation and its beneficiaries
ALERTS & UPDATES
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