When it comes to managing and protecting wealth in the Dubai International Financial Centre (DIFC), the choice between trusts and foundations can have a significant impact. These two structures offer distinct benefits, from asset protection to long-term family wealth planning, but their legal frameworks, control mechanisms, and tax advantages vary.

Let’s break down the key differences between Trusts and Foundations in DIFC, helping you make an informed decision about the best path for securing your assets and ensuring your legacy.

Key Differences Between Trusts and Foundations in DIFC

1. Legal Personality

Trusts in DIFC:
Trusts under the DIFC Trust Law are legal arrangements where the trustee holds and manages assets for the benefit of beneficiaries. A trust itself is not a separate legal entity.

DIFC Foundations:
DIFC Foundations are independent legal entities with their own corporate status. They are established under the DIFC Foundations Law, with a charter and by-laws governing their operations.

2. Control and Governance

Control:

In a DIFC trust, control over the assets lies with the trustee, which may limit the settlor’s direct involvement. But in a DIFC foundation, the founder can retain influence by serving on the foundation council, ensuring alignment with the founder’s vision and offering more control compared to trusts.

Governance:

Trusts are governed by the trust deed, which defines the rights and responsibilities of the trustee and beneficiaries. DIFC Foundations have a flexible governance structure, allowing for the establishment of advisory committees or specific management roles tailored to the foundation’s purpose.

3. Purpose and Functionality

Trusts in DIFC:
Trusts are designed for:

• Asset protection
• Estate planning
• Beneficiary-focused wealth management
• They offer flexibility for distributing assets in line with the settlor’s wishes.

DIFC Foundations:
DIFC Foundations cater to:

• Philanthropic purposes
• Family wealth management
• Corporate structuring
• They are particularly suitable for long-term planning and activities with a broader purpose beyond individual beneficiaries.

4. Regulatory Framework in DIFC

Trusts:
The DIFC Trust Law provides a robust and internationally recognized legal framework, offering flexibility for trust formation and operation.

Foundations:
Governed by the DIFC Foundations Law, foundations are required to register with the DIFC Registrar of Companies. This law supports both private and charitable purposes, providing strong protections and flexible structuring options.

6. Tax Considerations in DIFC

Trusts:
DIFC trusts may offer tax-neutral advantages depending on the residency of the settlor and beneficiaries.

Foundations:
Under the revised Ministerial Decision No. 261 of 2024, family foundations and their wholly owned subsidiaries, including single-family offices (SFOs), can qualify for tax transparency if their activities are limited to investments and asset management, excluding business activities like personal investments in UAE shares, securities, and real estate. Foundations earning revenue from eligible activities, along with their subsidiaries, may benefit from corporate tax exemptions, potentially extending to all consolidated assets and holdings. This offers significant tax relief for family wealth and investment management structures.

7. Transparency and Confidentiality

Trusts:
DIFC trusts are private arrangements. Details about the trust, its assets, and beneficiaries are not publicly accessible, ensuring confidentiality.

Foundations:
While DIFC foundations are registered legal entities, only limited information (such as the name and purpose) is publicly available. Beneficiary and asset details remain confidential.

Trusts and Foundations in DIFC: How to Choose the Best Structure for You?

When deciding between Trusts and Foundations in DIFC, consider what aligns best with your objectives. If your focus is on asset protection, estate planning, and maintaining privacy, a trust is often the better choice, especially if you prefer a simpler structure where the trustee manages assets on behalf of beneficiaries. However, if you seek more control over your assets, the ability to engage in philanthropy, or manage long-term family wealth with greater flexibility in governance, a DIFC Foundation might be more appropriate. Foundations also offer advantages like tax transparency for investment-focused entities such as single-family offices. Ultimately when choosing between trusts and foundations in DIFC, your decision should be based on your specific goals for asset management, control, and governance.

Establish Your DIFC Foundation with Ease

MS simplifies the entire process of setting up your DIFC Foundation, providing expert support from start to finish. We guide you through the legal framework under the DIFC Foundations Law, ensuring your foundation is structured to meet your specific goals—whether that’s wealth management, setting up a single-family office, or pursuing philanthropy. As you’ve already grasped the difference between trusts and foundations in DIFC, the focus now shifts to execution and achieving clarity in practice with MS.

DIFC Foundations offer a premier legal framework for asset administration in the UAE, grounded in the esteemed principles of English Common Law. With rigorous judicial oversight, these foundations provide an exceptional legal structure for various purposes, including philanthropy, family business protection, real estate management, and safeguarding valuable possessions like art.

Elevate Your Asset Management with DIFC Foundations

The DIFC Foundation offers a robust framework for managing wealth, ensuring transparency and control while maintaining privacy and confidentiality. Ideal for private wealth management, it simplifies succession and legacy planning, protecting assets from creditors, divorce claims, and forced heirship rules. With its premium governance structure, the DIFC Foundation serves as a secure and versatile platform for asset preservation. Whether you are focusing on wealth safeguarding or planning for future generations, the DIFC Foundation provides the necessary tools to protect your legacy and enhance your financial strategy.

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How can a Founder maintain control over the Foundation and its Assets?

Founders can maintain control over a DIFC Foundation and its assets by incorporating specific mechanisms in the Charter and By-Laws. These include the ability to appoint and remove Council Members and/or the Guardian, granting the Founder casting vote rights as a Council Member, and establishing veto rights over key decisions as the Guardian. Additionally, Founders can reserve powers to amend the Charter and By-Laws, including the authority to dissolve the Foundation, ensuring they retain significant oversight and influence over its governance and operations.

Can a DIFC Foundation Hold Property?

Yes, a DIFC Foundation can hold property in Dubai, applicable to both Muslims and non-Muslims, in areas designated for foreign ownership. The DIFC has an MOU with the Dubai Land Department to support this. Additionally, if it can be proven that the beneficial owner of the property being transferred to the Foundation is the same, an application can be made to reduce the transfer fee from 4% to just 0.125%, making property acquisition more economical.

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Key Features of DIFC Foundations

• The DIFC operates as a financial free zone with its own civil and commercial laws, providing access to DIFC Courts, where proceedings are conducted in English under Common Law.
• Foundations can hold a wide range of assets, including shares, bank accounts, aviation assets, and any other legally permissible assets from around the world.
• A DIFC Foundation has its own legal identity, allowing it to enter contracts and arrangements directly, like other incorporated entities.
• Foundations can be redomiciled (migrated) in and out of DIFC, offering flexibility in location and management.
• Foundations can be established with an initial asset commitment of as little as USD 100, making them accessible for various purposes.
• There is no requirement for a physical office in the UAE, and the Foundation can use the address of a registered company service provider; additionally, there are no residency requirements for Founders or officers.

Why MS Foundation Setup Services for DIFC entities

Discover the strategic advantages of establishing a DIFC Foundation to simplify your wealth planning and safeguard your family’s future. At MS, our dedicated team specializes in DIFC foundations and is committed to guiding you through every phase of the setup process. We tailor a personalized structure that aligns seamlessly with your asset goals. Beyond basic compliance, our proactive approach anticipates regulatory changes, ensuring your foundation remains flexible and effective for generations to come in the DIFC. If you are choosing DIFC for your business setup, as a registered corporate service provider, MS also offer expert incorporation assistance for family offices and prescribed companies, ensuring a seamless and compliant setup tailored to your specific needs.

About MS

At MS, with a significant presence in Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), we are more than just advisors – we are your bridge to success. Specializing in Corporate, Compliance, Market Entry Research and Feasibility Study, Advisory, Tax & Accounting services and Executive Search, we draw on over seven years of experience across the UAE to provide exceptional insights into local compliance and regulations. By delivering tailored solutions and unwavering support, we enable our clients to unlock their full potential and achieve remarkable success. We serve as the single source solution provider for corporates, institutions and private clients leveraging our extensive multijurisdictional services experience. Our vision is to be the foremost global partner on every client’s transformative business journey, driving growth and realizing aspirations in the Gulf region.

Disclaimer

 MS is a trading name of MS Corporate Services (DIFC) Limited, M S Global Solutions DMCC and M S Chartered Accountants LTD (ADGM). MS Corporate Services (DIFC) Limited is registered with the Dubai Financial Services Authority (Reg No: 9054) as DNFBP and is commercially licensed by the Dubai International Financial Centre Authority as a Corporate Services Provider. M S Global Solutions DMCC is licensed by Dubai Multi Commodities Centre Authority (Reg no: 873767) as a Corporate Services Provider and Management Consultant. M S Chartered Accountants LTD is licensed by ADGM Authority (Reg No: 000007218) for Management Consultancy, Tax Consultancy, Compliance Consultancy and Accounting Services.

Last year, the Dubai Financial Services Authority (DFSA) imposed fines on the former CFO of a listed Real Estate Investment Trust (REIT) for being knowingly concerned in misleading statements and accounting breaches. This case serves as a stark reminder of the critical importance of financial oversight and compliance within the Dubai International Financial Centre (DIFC). It underscores the significant responsibilities of a Finance Officer in the DIFC in ensuring accurate financial reporting and adherence to regulatory standards, protecting both the firm and its stakeholders from potential repercussions.

The FO collaborates closely with senior management and other key stakeholders to oversee compliance, manage capital adequacy, and ensure timely and accurate financial reporting. In light of these events, the responsibilities of a Finance Officer in the DIFC are more critical than ever.

Before exploring the responsibilities of a Finance Officer in the DIFC, it’s essential to understand the value of having one in place.

Why a Finance Officer?

The Finance Officer serves as the regulator’s eyes and ears for the firm’s financial activities. As an Authorized Individual under DFSA regulations, the FO collaborates closely with other key authorized individuals, including the Senior Executive Officer (SEO), Compliance Officer (CO), and Money Laundering Reporting Officer (MLRO). This coordination ensures that the company meets all licensing requirements, such as capital adequacy and audit compliance, while effectively conducting its business operations.

Now, dive into the key responsibilities of a Finance Officer in the DIFC.

Key Responsibilities of a Finance Officer in the DIFC

The key responsibilities of a Finance Officer in the DIFC are comprehensive and encompass various aspects of financial oversight:

1. Compliance Management: The FO ensures that the company adheres to the DFSA PIB module as an Authorized Individual. This includes the preparation and submission of financial reporting returns through the Electronic Prudential Reporting System (EPRS) in a timely manner.
2. Financial Reporting: Regular reporting to the SEO and Board on critical financial matters, including capital resources, risk capital requirements, and liquid assets, is a fundamental duty of the FO.
3. Capital Adequacy Oversight: The FO is responsible for providing timely reports on the company’s capital resources, ensuring adequate capital and liquid resources are maintained at all times to navigate potential stress events.
4. Budgeting and Financial Projections: Preparing budgets and financial projections is essential to anticipate issues and ensure financial stability.
5. Accounting Oversight: The FO oversees the finance and accounting functions, ensuring compliance with IFRS and applicable rules. This includes establishing and monitoring the implementation of the company’s financial policies, procedures, systems, and controls.
6. Internal and External Liaison: The FO plays a vital role in liaising with the external auditor to obtain opinions on the financial statements and coordinate with the internal audit function concerning financial matters.
7. Client Fund Management: Ensuring the proper reconciliation of client monies and their segregation from the company’s funds is paramount for maintaining trust and compliance.

How MS Facilitates the Key Responsibilities of a Finance Officer in the DIFC

Outsourcing finance officer services with MS plays a crucial role in DIFC bringing extensive financial expertise to ensure that your company operate in compliance with DIFC regulations and upholds ethical standards. FOs implement robust internal controls and financial processes, providing strategic advice that enhances compliance while optimizing financial performance. By fostering transparency and maintaining high financial standards, FOs help prevent fraud and build investor confidence within the DIFC framework. MS enables firms to delegate the key responsibilities of a finance officer in the DIFC, allowing the entities to concentrate on core operations and strategic growth. This partnership not only mitigates regulatory risks but also protects reputations and strengthens positions in the competitive DIFC landscape, ensuring businesses meet and exceed the stringent standards required for success.

India’s Gujarat International Finance Tec-City (GIFT City) was established as an ambitious financial hub aimed at attracting international investments and becoming a one-stop shop for global finance. However, recent regulatory changes have sparked discussions on how the evolving landscape of financial centres might affect the movement of capital and the strategies of global investors.

The GIFT City regulator recently halted approvals for family investment funds, following feedback from the Reserve Bank of India (RBI). The central bank raised concerns that loosening capital controls for these funds could create loopholes potentially exploitable for money laundering. This move is seen as a significant shift for GIFT City, which was intended to operate as a free-market pilot, free from many of India’s stringent rules on taxes and capital flows.

Experts believe that this development could impact the growth of GIFT City as a preferred destination for overseas investments by wealthy individuals. However, it also opens up new avenues for other global financial centres, such as the Dubai International Financial Centre (DIFC) as there are strong economic ties between India and Dubai, and a growing trend of Indian expatriates viewing Dubai as a second home, the DIFC is well-positioned to attract increased investment interest from India’s wealthy elite.

Understanding the Impact: What the Changes in GIFT City Mean for Investors

1. Investor Concerns and the Search for Stability

The decision to halt approvals for family investment funds in GIFT City may cause some investors to reassess their strategies. For many, this regulatory change raises concerns about the predictability of the business environment in India’s financial centres. Investors often seek stable jurisdictions where regulations are clear, predictable, and conducive to long-term growth.

With India’s already strict controls on capital outflows — including a $250,000 cap on overseas investments per resident — the new restrictions could lead investors to explore alternative financial hubs. The uncertainty around these recent changes might prompt investors to consider financial centres that offer a more stable regulatory landscape.

2. The Global Context: Financial Centres as Gateways for Investment

Globally, financial centres like Singapore, Hong Kong, and Dubai have developed reputations as gateways for international capital flows. They offer diverse advantages, including strategic geographic locations, robust legal frameworks, and access to global markets. Each centre has tailored its policies to attract specific types of investors and businesses.

For instance, Singapore is known for its strong regulatory environment and focus on wealth management, while Hong Kong has traditionally been a gateway to China. Dubai, through the DIFC, has carved a niche as a bridge between East and West, offering unique opportunities for investors looking to access emerging markets in the Middle East, Africa, and South Asia. Additionally, Abu Dhabi being branded as the capital of capital through its young financial hub Abu Dhabi Global Market (ADGM), is also actively competing to attract global investors, positioning itself as a significant player in the global investment landscape.

How the DIFC Stands to Gain from GIFT City’s Regulatory Changes

Given the recent developments in GIFT City, the DIFC could emerge as a more attractive destination for those investors seeking a stable and globally connected financial hub. Here’s why:

1. A Conducive Environment for Family Offices and Wealth Management

The DIFC with its 20 years of legacy recognized for its investor-friendly policies, particularly for family offices and wealth management services. Unlike the current uncertainties in GIFT City, the DIFC provides a well-defined regulatory framework governed by the Dubai Financial Services Authority (DFSA). This framework is aligned with international standards, providing investors with clarity and confidence. Additionally, the newly introduced Prescribed Company (PC) regulations represent a groundbreaking step in simplifying corporate structuring, making the DIFC an excellent choice for global asset holding.

2. Access to Global Markets and Tax Efficiencies

DIFC’s strategic location allows investors to access diverse markets, from Africa to Asia and Europe. The Corporate Tax regime in UAE also offers significant advantages to DIFC as it is a Free Zone. The entities in DIFC can enjoy 0% corporate tax under specific criteria.

3. World-Class Infrastructure and a Growing Ecosystem

The DIFC offers state-of-the-art infrastructure and a vibrant financial ecosystem, hosting numerous international banks, financial institutions, and service providers. This infrastructure provides investors with access to a wide range of services, products, and professional expertise, facilitating growth and expansion. The brand Dubai itself epitomizes luxury and modern tourism, further enhancing the appeal of the DIFC as a premier investment destination.

Weighing Options in a Changing Global Financial Landscape

As GIFT City adapts to its evolving regulatory landscape, mighty Indian investors may increasingly seek alternatives that offer greater stability and a more predictable regulatory environment. The DIFC, with its favourable conditions, extensive support services, and strategic global positioning, presents a compelling choice. Located within a short flight of under four hours, it offers a convenient and attractive option for investors looking to diversify their international portfolios with confidence.

Ultimately, the shift in India’s financial regulations could trigger a broader re-evaluation of investment strategies, presenting new opportunities for financial hubs across the globe to attract capital and foster growth in a dynamic economy.