DIFC Foundations: A Guide to Structuring, Governance and Uses

The growth of private wealth, family businesses and international investment structures in the UAE has increased the need for effective mechanisms to hold assets, manage succession and establish long-term governance arrangements.

The Dubai International Financial Centre (“DIFC”) Foundation is one such structure. Established under the DIFC Foundations Law No. 3 of 2018 (the “Foundations Law”), a Foundation is a separate legal entity that may hold assets, pursue specified objects and continue to exist independently from its Founder.

Unlike a company, a Foundation has no shareholders. Unlike a trust, the Foundation owns its property in its own name and does not hold that property on trust for another person.

This combination of separate legal personality, flexible governance arrangements and continuity of ownership makes DIFC Foundations particularly relevant for families, entrepreneurs and investors considering succession planning and long-term ownership structures.

What is a DIFC Foundation?

A Foundation is a body corporate with legal personality separate from its Founder and other persons connected with the structure.

It has the capacity, rights and privileges of a natural person and may therefore own assets, enter into contracts and exercise rights in its own name.

A Foundation may be established for charitable objects, non-charitable objects or to benefit identified persons, categories or classes of persons.

However, a Foundation cannot carry on commercial activities except where those activities are necessary, ancillary or incidental to achieving its objects.

This makes the Foundation primarily an asset ownership, governance and succession planning vehicle rather than an operating business structure.

Common Uses of DIFC Foundations

DIFC Foundations may be used for a wide range of private wealth and corporate structuring purposes.

Families may use a Foundation to consolidate ownership of businesses, investments and other assets within a single structure and establish rules governing how those assets should be managed across generations.

Entrepreneurs may transfer shares in operating companies or holding companies to a Foundation to reduce the risk of ownership fragmentation following succession events.

Foundations may also be used for philanthropic purposes, holding investment portfolios, intellectual property and other assets, and as the ultimate owner of wider corporate structures.

Where assets are located outside the DIFC, the laws applicable to those assets should also be considered, particularly in relation to foreign immovable property and transfer formalities.

The Founder and Reserved Powers

The Founder establishes the Foundation, determines its objects and contributes the initial property required for its establishment.

However, establishing a Foundation does not necessarily require the Founder to relinquish all involvement in the structure.

The Foundations Law permits the Founder to reserve powers to amend, revoke or vary the Charter or By-laws, amend the objects of the Foundation or terminate the Foundation.

These powers must be expressly detailed in the Charter and are subject to statutory time limits. Where the Founder is an individual, the powers may be reserved for no longer than the Founder's lifetime. Where the Founder is a legal person, they may be reserved for a maximum of fifty years.

The ability to reserve powers provides flexibility to Founders who wish to establish a long-term structure while retaining an appropriate degree of control during their lifetime.

The Foundation Council

Every DIFC Foundation must have a Council comprising at least two members.

The Council administers the property of the Foundation and carries out its objects.

Council Members are required to act honestly and in good faith in the best interests of the Foundation, exercise appropriate care, diligence and skill, and disclose interests in transactions considered by the Council.

The composition and decision-making procedures of the Council are therefore important considerations when designing the governance structure of a Foundation.

Family members, trusted advisers and corporate entities may be appointed to the Council depending on the objectives of the structure.

The Guardian

A Guardian provides an additional layer of oversight over the Foundation Council.

The appointment of a Guardian is mandatory where the Foundation has charitable objects or specified non-charitable objects. In other structures established to benefit persons or classes of persons, the appointment of a Guardian is optional.

The Guardian is responsible for taking reasonable steps to ensure that the Council carries out its functions and may be given powers under the By-laws to approve or disapprove specified actions of the Council.

A Guardian cannot simultaneously serve as a member of the Council.

Qualified Recipients

The By-laws of a Foundation may provide for distributions of Foundation property to Qualified Recipients.

Qualified Recipients may include persons entitled to fixed or discretionary distributions, persons who become entitled upon the occurrence of future events, charities and default recipients.

Importantly, a Qualified Recipient does not own the property of the Foundation.

Their rights are generally limited to receiving payments or distributions where an entitlement arises under the By-laws or another arrangement with the Foundation.

This allows considerable flexibility when determining who may benefit from the Foundation and the circumstances in which distributions should be made.

The Charter and By-laws

The constitutional framework of a DIFC Foundation is established through its Charter and, where applicable, its By-laws.

The Charter contains the fundamental elements of the Foundation, including its name, objects, initial capital and duration where the Foundation is established for a limited period.

The By-laws govern the detailed administration of the Foundation.

They may regulate the appointment and removal of Council Members and the Guardian, decision-making procedures, distribution of Foundation property, addition and removal of recipients, reserved powers, investment decisions and the ultimate distribution of assets following dissolution.

The flexibility available when drafting these documents allows the governance structure to be tailored to the objectives and circumstances of the Founder.

Asset Protection and Succession Planning

One of the principal attractions of a Foundation is the separation between the Foundation's property and the personal ownership of the Founder and Qualified Recipients.

Once assets are validly transferred to the Foundation, they are owned by the Foundation itself. The death or incapacity of the Founder does not result in the dissolution of the Foundation or a change in ownership of its assets.

The Foundations Law also contains provisions addressing foreign heirship claims and foreign laws that do not recognise Foundations.

However, the protection is not absolute. Where the DIFC Court determines that property was transferred with the intention of defrauding a creditor and the transfer rendered the Founder or Contributor insolvent or without sufficient property to satisfy the creditor's claim, the Foundation may be required to satisfy that claim to the extent provided under the Foundations Law.

Foundations should therefore be established as part of legitimate and forward-looking succession and wealth planning rather than as a mechanism to avoid existing liabilities.

Establishing and Administering a DIFC Foundation

The establishment process involves determining the objects of the Foundation, identifying the assets to be contributed, designing the governance structure and preparing the Charter and By-laws.

The Foundation must have a registered office in the DIFC and appoint at least two Council Members. Depending on its objects, a Guardian may also be required.

A Registered Agent may be appointed but is not mandatory.

Following registration, the Foundation must maintain Accounting Records and prepare annual accounts approved by the Council. Where a Registered Agent has been appointed, the annual accounts are provided to the Registered Agent. Otherwise, they must be filed with the DIFC Registrar.

The effectiveness of a Foundation therefore depends not only on its initial establishment but also on proper administration and continued compliance with its constitutional documents and the Foundations Law.

Looking Ahead

DIFC Foundations provide families, entrepreneurs and investors with a flexible structure for holding assets, maintaining continuity of ownership and establishing governance arrangements that can operate across generations.

Their usefulness extends beyond succession planning. Foundations may form part of family business structures, international holding arrangements, philanthropic structures and broader private wealth planning strategies.

However, the structure of the Foundation should reflect the Founder's actual objectives. The assets to be contributed, powers retained by the Founder, composition of the Council, role of the Guardian and rights of Qualified Recipients should all be considered before establishment.

When properly structured and administered, a DIFC Foundation can provide an effective long-term platform for the ownership, governance and succession of family and investment assets.

LegalCode assists families, entrepreneurs and investors with establishing and administering DIFC Foundations and designing wider corporate and succession planning structures.

For more information on establishing a DIFC Foundation or selecting an appropriate structure for your assets, investments or succession planning objectives, please contact LegalCode.