06 May 2018

The new Foundations Law in the DIFC

Authored by: Hadef & Partners, Sector Groups


On 14 March 2018, Dubai International Financial Centre (‘DIFC’) Law No.3 of 2018 (‘Foundations Law’) was enacted, introducing the concept of a foundation (‘Foundation’) to DIFC law. Hadef & Partners were part of the DIFC’s Wealth Management Working Group which was tasked to consider the status of the wealth management industry and the relevant legislation and regulation in the DIFC.

The DIFC have confirmed that the Foundations Law is ‘in line with the previous recommendations of the Wealth Management Working Group’ and is ‘the product of global benchmarking and extensive consultation with industry professionals and family business networks both regionally and globally.’

In our previous sector email update, in late October 2017, we summarised the Wealth Management Working Group’s recommendations in relation to the Foundations Law which was at that stage still a draft law. In this article we break down the concept of a Foundation and the key provisions of the enacted Foundations Law and also look at some of the advantages and disadvantages of using a Foundation.

What is a Foundation?

Unlike trusts, Foundations are incorporated as legal entities with their own distinct legal personality. A Foundation can hold assets in its own name on behalf of beneficiaries. The property of a Foundation is not held by it on trust for any other person. A Foundation does not have shareholders and a Foundation has independence due to being self-owned.

What is a Foundation used for?

A Foundation can be used for a number of purposes, including but not limited to, private wealth management and preservation, succession planning, tax planning, charitable institutions, financial planning, asset protection, corporate structuring and creditor protection. 

What are the key provisions of the new DIFC Foundations Law?

  1. Governing Law

Foundations created under the Foundations Law are governed exclusively by the laws of the DIFC, with limited exceptions allowed where the original endowed property is outside the DIFC and the founder or contributor does not have power to dispose of it according to the law of the place where the property is situated.

  1. Categories of Foundations

There are four types of Foundations based on their objects, with different governance requirements applying to each. The categories are as follows:

  • those which benefit persons identified/classified by name, class or category;
  • those which are exclusively charitable;
  • those which are not charitable; and
  • a combination of two or more of the above.
  1. Governance Controls
  1. Founder

A key feature of a Foundation (as compared to a common law trust) is the ability of the person who contributes property to the Foundation (the “Founder”) to retain a high degree of control. The Founder can amend, revoke or vary the terms of the charter, by-laws or objects of the Foundation or terminate the Foundation during his lifetime.

  1. Council

The duties of the council of a Foundation (“Council”) to the Foundation itself include the following:

  • to act within powers conferred by the Foundation’s constitutional documents;
  • to act honestly and in good faith in the best interests of the Foundation; and
  • to exercise the care, diligence and skill that reasonably prudent persons would exercise in comparable circumstances.
  1. Guardian

The Founder (or a body corporate) may be appointed as the guardian to the Foundation (“Guardian”). The Guardian must take reasonable steps to ensure that the Council carries out its functions. The Guardian may require the Council to account for how it has administered the Foundation’s property or acted to further its objects.

It is possible to grant the Guardian the power to approve or disapprove of the actions of the Council. The by-laws may also provide for the Guardian to sanction or authorise any action taken or to be taken by the Council which the by-laws would not otherwise permit, provided such acts are in the best interests of the Foundation and the Council is acting in good faith. 

  1. Constitutional Documents
  1. Charter

The constitutional documents of a Foundation comprise of a charter (“Charter”) which must include details of the name, objects, initial capital, duration (if limited in time) and a declaration by the Founder requesting the Council to comply with the terms of the Charter.

  1. By-laws

A Foundation may also have by-laws, although these are not mandatory. The by-laws prescribe the functions of the Council, detail the procedure for appointment, resignation and removal of the Council and Guardian (if any), the remuneration of the Council and Guardian (if applicable), how the decisions of the Council are to be made, functions of the Council which can be delegated (if any) and specify what should happen to the property of the Foundation if it is wound up or dissolved.

  1. Disclosure of Information

In order to ensure the protection of information relating to beneficial ownership of private Foundations, whilst also mitigating money laundering risks, relevant information in relation to a Foundation is provided only to the DIFC Registrar of Companies (“Registrar”) or to a registered agent who is able, on the request of the Registrar, to provide the same. Such information is not placed on any public register and is not accessible to the public. The Registrar will only release such information to another body for limited, legitimate purposes.

  1. Provision for Depository Receipts

The Foundations Law includes provisions to allow for a Foundation to issue securities, such as depository receipts or certificates, representing the value of the contributed assets to the contributor. This is provided for through the issuance of certificates in exchange for the contribution of assets into the Foundation by the contributor. The certificates represent the economic entitlement to the assets only. Essentially, the certificates serve as contracts issued by the Foundation to the contributor, representing the value of the underlying assets that such contributor owns. This effectively results in a separation of the ownership of the relevant assets from their economic value. The rights conferred on certificate holders are determined by the provisions under which the certificates are issued.

  1. Accounting Requirements

Company accounts, reporting and audit requirements are substantially in the same form as applicable under the DIFC Companies Law as it applies to private companies. Foundations are subject to the requirements to:

  • prepare annual accounts in accordance with accepted international financial reporting standards prescribed or approved by the Registrar;
  • have such accounts approved by its Council within six months of the end of the Foundation’s financial year;
  • file a copy of the accounts with the Registrar or the registered agent, as applicable; and
  • keep accounting records an audit of accounts is not required.
  1. Presence in the DIFC

All DIFC Foundations are required to have a physical presence in the DIFC, either through a registered agent, or directly. It is at the discretion of the Founder whether to appoint a registered agent.

What are the main advantages of using a Foundation?

  1. Governance

The Foundations Law provides a robust governance structure. The Foundation’s council acts in an equivalent manner to a board of directors. A Foundation may have a guardian which supervises the Foundation council and ensures that it acts in accordance with the charter and by-laws. 

There are mechanisms available which safeguard the founder’s ability to exercise control over a Foundation. The founder can maintain full control over the assets after the Foundation has been created, and beyond the death of the founder. The governing rules of a Foundation can be non-revocable or amendable by succeeding boards.

  1. Perpetual concept

A Foundation is a perpetual concept, allowing arrangements to continue and therefore providing certainty after the founder’s death. Foundations can be formed for an unlimited period of time and may continue until their objects have become fulfilled. A foundation requires no owner so provision does not need to be made for the transmission of a foundation in succession planning.

  1. Flexibility

Mechanisms can be built into a Foundation allowing for its beneficial class to be changed. It is also possible to impose obligations on a recipient as a condition of receipt of any amount from the Foundation or make any right of receipt liable to termination or restriction.

What are the main disadvantages of using a Foundation?

  1. Accountability

The independence and impenetrability of a Foundation can become a disadvantage in terms of accountability. This risk can be mitigated by appointing a guardian.

  1. Foreign jurisdictions

Private Foundations may not be recognised in foreign jurisdictions if such vehicles are not found within that jurisdiction’s own legal system.


Despite the few disadvantages highlighted above, the Foundations Law has been welcomed by individuals, families, businesses and industry professionals. They have been widely received as an effective new way of, amongst other things, managing wealth, protecting assets and assisting with succession planning.

For more information, please contact us on sectors@hadefpartners.com.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.