The UAE’s recent update on UAE family foundations is a game-changing move for high-net-worth families, offering a wealth of new opportunities. Ministerial Decision No. 261 of 2024, which takes effect retroactively from June 1, 2023, introduces groundbreaking advantages that could completely transform how families manage their wealth, safeguard their assets, and plan for the future. With enhanced tax relief, simplified governance, and greater flexibility, this new framework solidifies family foundations as an indispensable tool for wealth managers aiming to preserve and grow their legacy in the UAE. 

What is a “Family Foundation”? 

A Family Foundation, as defined under the UAE Corporate Tax Law, is a legal entity such as a foundation, trust, or similar structure designed to safeguard and manage the assets and wealth of an individual or family. 

The primary role of a Family Foundation is typically to: 

• Receive, hold, and invest funds and assets. 

• Disburse or manage these resources to benefit individual beneficiaries or support a charitable purpose. 

For UAE Corporate Tax purposes, these activities generally do not qualify as a “business” or “business activity” if they are carried out directly by the founder, beneficiaries, or other individuals. 

Let’s dive into the key highlights in the recent MoF update on UAE family foundations. 

Tax Transparent Status for Foundation Entities 

One of the standout features of the MoF’s latest decision is the ability for family foundations to apply for tax transparent status—a move that opens the door to clearer, more predictable tax treatment. Now, there is no need to verify each individual asset holder or member, and families can hold their wealth in the UAE with a new level of simplicity and transparency. 

For those managing complex estates or diverse business interests, this MoF update on UAE Family Foundations is a boon. It streamlines compliance, slashes red tape, and makes tax reporting easy. This newfound clarity empowers families to focus on what truly matters: growing and preserving their wealth with confidence and ease. 

A Family Foundation That Acts Like an Individual 

One of the most striking elements of this new regulation is its treatment of family foundation income. Historically, only certain types of income, like rental and investment returns, were exempt from corporate tax. Now, income generated by wholly owned entities of the foundation—like SFOs—is treated as if it were earned directly by the foundation’s founders or council members. 

What does this mean for families? Simply put, it aligns the treatment of UAE family foundations with the tax benefits traditionally enjoyed by individuals, making it easier to manage assets and investments. The result is a more fluid, flexible wealth management structure, with fewer hoops to jump through when it comes to tax filings. 

Streamlined Succession Planning and Wealth Protection 

Succession planning is one of the major aspects of family foundation structures, and the new MoF update on Family Foundations makes this process smoother than ever. With the new tax transparency provisions, UAE family foundations can focus more on long-term wealth preservation and less on tax compliance requirements. 

By consolidating assets and qualifying for tax exemptions, family foundations offer a secure, efficient way to manage family wealth across generations. Whether you’re looking to safeguard your legacy or ensure a smooth transition of wealth to the next generation, this MoF update on UAE Family Foundations strengthens the foundation’s role as a central pillar in family estate planning. 

Alignment with the UAE’s Corporate Tax Framework 

This decision also strengthens the alignment of family foundations with the UAE’s broader corporate tax framework. By treating UAE family foundations similarly to unincorporated partnerships, the new update makes it easier for families to go through the UAE’s tax landscape. The clarity provided by this regulation ensures that foundations can continue to benefit from favorable tax treatments while operating seamlessly across multiple jurisdictions. 

This MoF update on Family Foundations not only simplifies the legal and tax structures governing family foundations, but it also creates a stable, predictable environment for wealth management—whether you are based in the DIFC, ADGM, or RAK ICC. 

The Perfect Incentive for Asset Consolidation 

The recent MoF update on Family Foundations provides a powerful incentive to consolidate assets under family foundations. By positioning a foundation at the top of the ownership structure, families can achieve tax neutrality for all underlying assets, simplifying wealth management and offering stronger asset protection. 

This change is a win-win for families looking to optimize their asset structures while minimizing corporate tax exposure. Whether you are managing real estate, securities, or private investments, the new framework provides a clear, tax-efficient path forward. 

MoF Update on UAE Family Foundations: Critical Considerations for Implementation 

Families should carefully assess their existing structures and explore the potential benefits of restructuring their assets under a family foundation to fully capitalize on this recent MoF update on Family Foundations. While the opportunities are substantial, meeting the specific conditions outlined in the update is crucial for maximizing tax relief. As of now, the application form for tax transparency has yet to be released by the Federal Tax Authority (FTA). It remains to be seen whether the application will need to be filed annually or just once, which could significantly simplify the process. 

For more complex scenarios, families may need to seek private clarification from the FTA. This could include situations such as a foundation holding assets in the capacity of a trustee of a trust or determining whether tax transparency applies to a purpose foundation. Taking these factors into account will ensure that families are fully prepared to explore this MoF update on UAE Family Foundations and unlock the full potential of their wealth structures. 

Making the Most of the MoF Update on UAE Family Foundations with MS 

At MS, we specialize in guiding family offices and foundations through this transformative evolution, offering tailored support to align with your long-term goals. Our expertise ensures that you can make best use of the new MoF update on Family Foundations with confidence, unlocking opportunities while safeguarding your family’s future. Let us partner with you to build a robust and optimized foundation structure that secures your legacy for generations to come. 

“Here’ re the 7 key steps to set up a DIFC Foundation, emphasizing the importance of tailored documentation and regulatory compliance for effective wealth management. It highlights how this secure and flexible framework can help individuals and families in protecting and managing their assets for future generations.”

When it comes to wealth management, the right strategies and tools can be transformative. It’s not solely about increasing your assets; it’s also about protecting them for future generations and ensuring a seamless transition of wealth. In a world where personal and business interests often stretch across various jurisdictions, finding a robust and adaptable solution is essential. This is where the Dubai International Financial Centre (DIFC) foundations emerge as the premier structuring option that the MEASA region has to offer.

Established under the exclusive governance of DIFC laws, DIFC foundations offer a secure and flexible framework recognized globally, making them an ideal choice for individuals and families committed to preserving and managing their wealth across borders.

Now that you understand the importance and benefits of a DIFC foundation, Let’s explore the steps to set up a DIFC Foundation.

Key Steps to Set up a DIFC Foundation

Step 1: Collation of Documents

The first step in setting up a foundation involves gathering the necessary documentation. This includes detailed Know Your Customer (KYC) information on the following individuals:

• Founder: The person or entity establishing the foundation.
• Council Members: Individuals appointed to manage the foundation’s affairs.
• Guardian: The person responsible for overseeing the foundation and ensuring compliance with its charter and by-laws.

Collecting comprehensive KYC documentation is crucial for compliance with regulatory requirements and ensures that the foundation operates within the legal framework established by the DIFC.

Step 2: Preparation of Resolutions and Legal Documents

Once the documentation is in place, the next step is to prepare the necessary resolutions and legal documents. This includes drafting the Charter and By-Laws of the foundation.

While standard templates are available, we highly recommend customizing these documents to align with the specific needs and objectives of the client. Customization ensures that the foundation’s governance structure, operational procedures, and overall mission reflect the founder’s intentions and requirements.

Step 3: Finalization of Registered Address

A foundation must have a registered address in the DIFC. This address can either be a physical location within the DIFC or provided by a registered corporate service partner. Selecting a reliable registered agent is essential, as they will assist with compliance matters and ensure that the foundation meets all legal obligations.

Step 4: Initial Submission to the DIFC Registrar of Companies

One of the key steps to set up a DIFC Foundation is submitting an application to the DIFC Registrar of Companies. It should include the Charter, By-Laws, KYC details, and proof of the registered address.

Step 5: DIFC Review/Clarifications and Responses

Upon receiving the application, the DIFC Registrar will review the submitted documents. During this stage, the Registrar may request additional clarifications or information. It is crucial to respond promptly and accurately to any inquiries to facilitate the approval process.

Step 6: Final Approvals

Once the DIFC Registrar is satisfied with the application and all required clarifications have been addressed, the foundation will receive final approvals. At this stage, the foundation is officially formed, and the founders can begin to execute its objectives.

Step 7: Bank Account Opening and Visa Applications (if applicable)

Among the key steps to set up a DIFC Foundation, the final procedure involves opening a bank account and applying for any necessary visas for council members or staff. A bank account is essential for managing the foundation’s finances and ensuring its objectives are met effectively.

Steps to Set Up a DIFC Foundation: Benefits and Challenges

Setting up a DIFC Foundation is a powerful way to safeguard and manage wealth across borders, offering unparalleled flexibility, security, and global recognition. By following these clear and structured steps to set up a DIFC Foundation, individuals and families can ensure that their foundation is established in compliance with DIFC regulations and tailored to their unique needs and objectives. Whether you’re looking to protect personal assets, streamline succession planning, or support philanthropic endeavours, a DIFC Foundation provides the ideal platform to achieve long-term wealth preservation and growth.

While the steps to set up a DIFC Foundation are structured and clear, individuals and families may encounter various challenges during the process. Common issues include difficulties in documentation preparation, compliance with regulatory requirements, and understanding the DIFC laws.

Steps to Set Up a DIFC Foundation: How MS Can Guide You Through the Process

At MS, we specialize in providing end-to-end solutions for setting up DIFC Foundations. As a registered corporate service provider in the DIFC, we guide you through steps to set up a DIFC Foundation from gathering the necessary documentation to securing final approvals. Our team ensures that your foundation is customized to meet your specific needs while complying with all regulatory requirements. MS is your trusted partner in safeguarding and managing wealth for future generations. Let us help you unlock the full potential of a DIFC Foundation.

When it comes to protecting and structuring your wealth, the right tools can make all the difference. Effective wealth management isn’t just about growing your assets—it’s about safeguarding them for future generations and ensuring they are passed on seamlessly. In a world where personal and business interests often span multiple jurisdictions, finding a robust yet flexible solution is crucial. This is where Dubai International Financial Centre (DIFC) foundations come into play. Combining the strengths of trusts and companies, these unique entities offer a powerful vehicle for asset protection, succession planning, and wealth management. Established under the exclusive governance of DIFC laws, DIFC foundations provide a secure, versatile, and globally recognized framework, ideal for individuals and families looking to preserve and manage their wealth across borders.

Key Features of DIFC Foundations

DIFC foundations are unique legal entities governed exclusively by DIFC laws, with limited exceptions. These exceptions apply when the original endowed property is situated outside the DIFC, and the founder lacks the power to dispose of it according to the law where the property is located.

Foundations can be used for various purposes, including wealth management, succession and inheritance planning, and owning private trust companies. They are particularly beneficial for families with members and business interests in both civil and common law jurisdictions. The DIFC’s comprehensive support for financial and non-financial business activities, including banking, professional services, and wealth management, makes it an ideal jurisdiction for establishing such entities.

Incorporating DIFC Foundations

To establish a foundation in the DIFC, the following requirements must be met:

• Founder: A minimum of one founder is required to establish a foundation.
• Council Members: The foundation must have at least two members on its council.
• Registered Office: The foundation must maintain a registered office in the DIFC. This can be achieved by setting up an office within the DIFC, sharing an office with an affiliated entity, or appointing a registered agent.
• Charter and By-Laws: While a standard foundation charter can be used, it is customizable to suit the specific needs of the client.
• Guardian Appointment: If the foundation has a charitable or specified non-charitable object, a guardian must be appointed. In other cases, appointing a guardian is optional.

Purpose and Governance

A DIFC foundation’s objectives must be certain, reasonable, and possible, and they must align with the laws and public policy of the DIFC. Foundations can be established for charitable purposes, non-charitable purposes, or to benefit specific individuals or classes of persons.

While a foundation cannot engage in commercial or charitable activities directly, it may conduct activities ancillary or incidental to its objectives.

Governance of the foundation is overseen by a council responsible for administering the foundation’s property and carrying out its objectives. The founder or a corporate entity can serve as a council member, providing flexibility in managing the foundation’s affairs.

Founder Rights and Registered Agents

Founders of DIFC foundations enjoy significant control over the foundation’s operation, including the ability to amend, revoke, or vary the terms of the charter, by-laws, or objectives. Additionally, the founder can terminate the foundation during their lifetime.

While appointing a registered agent is optional, any agent appointed must be licensed by the DIFC Authority and registered with the DFSA as a designated non-financial business or professional (DNFBP).

Qualified Recipients and Depository Receipts

DIFC foundations may provide benefits to individuals or classes of persons as specified in the charter or by-laws. Importantly, information about these recipients is not placed on any public register, ensuring privacy.

Moreover, foundations in the DIFC can issue securities, such as depository receipts or certificates, representing the value of contributed assets. These certificates act as contracts, reflecting the value of the underlying assets owned by the contributor.

Accounting and Compliance

Foundations in the DIFC must prepare annual accounts in accordance with international financial reporting standards. These accounts must be approved by the foundation council and signed by two council members within six months of the end of the financial year. A copy of the approved accounts must be filed with the Registrar (if no registered agent is appointed) or provided to the registered agent. Unlike other entities, DIFC foundations are not required to have their accounts audited, reducing the administrative burden.

DIFC Foundations: Region’s Best Wealth-Protecting Structure

The DIFC’s framework for foundations offers a robust, flexible solution for managing and protecting wealth, particularly for families and individuals with diverse global interests. With its strong legal foundation, comprehensive support for business activities, and flexible governance structure, DIFC foundations are an attractive option for those seeking to safeguard and manage their assets effectively.