Overview

The DIFC Foundation is a legal entity administered by the Dubai International Financial Centre. It is a flexible wealth management and asset protection tool, combining some features of a trust with those of a corporate entity framework and governed by a charter and by-laws. It is an independent legal entity with no shareholders or members. In place of directors it has a council.

Use Cases

DIFC Foundations may be used for a variety of purposes including:
wealth management and preservation, including family wealth, businesses, investments, or other assets.

Succession and inheritance planning

Enabling asset transfer to beneficiaries according to the founder’s wishes, rather than falling under probate or forced heirship laws.

Asset Separation

Separating assets held by the foundation from the founder’s personal assets, which offers a degree of shielding from creditors or from legal claims.

Corporate Structuring

The DIFC Foundation can hold shares in other companies, or private funds.

Charitable purposes

To support specific causes or beneficiaries, family members or other named individuals.
An attractive option for high-net-worth individuals, families, and international investors wanting long-term security and control.

Tax Status

As of June 1, 2023, the UAE imposes a federal Corporate Tax (CT) of 9% on taxable income exceeding AED 375,000. DIFC foundations, being juridical persons established under UAE law, are considered taxable persons and are subject to this tax.
However, a DIFC foundation may apply to be treated as an "Unincorporated Partnership" for tax purposes, effectively rendering it tax-transparent. To qualify, the foundation must: Be established for the benefit of identifiable natural persons or public benefit entities.

Primarily manage assets or funds related to savings or investments.
Not engage in activities that would constitute a business if conducted directly by its founders or beneficiaries. Not have tax avoidance as its principal purpose. If approved, the foundation itself is not taxed; instead, beneficiaries are taxed on their share of income, subject to applicable thresholds and exemptions.

Value Added Tax (VAT)

The UAE levies a standard VAT rate of 5% on most goods and services. DIFC foundations are subject to VAT if they engage in taxable activities and their annual taxable supplies exceed AED 375,000.
For instance, if a DIFC foundation owns and leases commercial properties, it may be required to register for VAT and charge VAT on rental income.

Privacy

There are few public disclosure requirements, protecting the identity of founders and beneficiaries, although compliance with DIFC authorities is still mandatory.

There are no directors or shareholders such as would be found in a corporate structure, instead there are council members, who must be registered with the registrar. This information is not public-facing, though. Nominees are permitted and would act under direction of the founder or another party and are bound by the foundation’s charter and laws. This is done to enhance privacy, to bring professional skills to the council, or to maintain control. The identities of the founder and any beneficiaries are not made publicly visible
Only the charter is publicly filed, while sensitive by-laws and beneficiary information are kept confidential. A foundation’s assets, beneficiaries and operational details remain private during probate, unlike wills, which become public.

Onboarding

Setting up a DIFC Foundation requires a specific process that Otonomos assists with.

It includes preparing a detailed charter document which will define purpose, governance, and assets. This may require legal expertise to draft it.
The foundation requires a council of at least two members to be formed, and a guardian may be appointed if required.
The Guardian serves as an additional level of compliance and oversees the council with respect to its fidelity towards the charter and the founder’s objectives. A guardian may be a person or a company, and the guardian is not permitted to be a member of the council.
A foundation also requires a registered physical address in the DIFC, Otonomos will provide this as part of the setup. Submit your documents, including founder resolutions to the DIFC Registrar of Companies for approval.

Otonomos will provide step by step assistance to the setup process.

KYC Verification

The DIFC fully complies with the Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. KYC is mandatory for founders, council members, and guardians. Information to be submitted includes passports, proof of address such as utility bills, and source of funds documentation.
Background checks may involve third-party verification such as credit agencies or sanctions list screening to ensure compliance with DIFC and UAE regulations.

Otonomos streamlines the KYC compliance procedure, ensuring all parties meet regulatory standards before submission to the Registrar.

Entity Maintenance

Maintaining a DIFC Foundation requires ongoing attention and record keeping. Foundations are required to maintain accurate financial records and governance documentation. The council manages operations according to the charter and by-laws, by holding meetings and keeping minutes. Any significant changes such as changes to council members must be reported to the Registrar.

The Otonomos Dashboard will allow you to keep all requirements up to date. It will also allow you to initiate changes to council members if it occurs.

Renewal Periods

Annual Renewal: Foundations must maintain annual filings and fees (e.g., registered agent fees or office lease costs). Foundations can exist indefinitely unless a specific term is set in the charter.

Reporting

Reporting obligations are minimal. Foundations must file basic updates with the Registrar, but financial statements are not required.
If the foundation is registered as a tax-transparent entity under UAE Corporate Tax, the beneficiaries may need to report income individually.

Shutting Down Your Entity

Dissolving a DIFC Foundation is a set process. If a foundation has achieved its set purpose, or it has completed its set duration, it may be dissolved. The council meets to initiate the dissolution process, notifying the Registrar, paying off any amounts outstanding and distributing any assets according to its own charter. Finally the registrar gives consent and the foundation is dissolved.