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What is the difference between a Trust and a Foundation in UAE?

Trust is an agreement under which a person (Settlor) transfers his assets to a trustee, who will undertake the responsibility to own and manage the assets according to the interest of the beneficiaries.

The settlor can transfer all their assets to the trust after preparing a trust deed. The trust deed contains the details of assets, a list of beneficiaries, powers of the trustee, other terms of the trust, etc. One of the advantages of forming a trust is to secure the assets from creditors of the settlor. The Trustee will own and manage the assets according to the trust deed and receive a remuneration for their work.

Furthermore, for stronger supervision of the Trust, the Settlor can appoint a protector. They will oversee the work of the Trust. Additionally, the trust also has the responsibility to distribute the income as per the trust deed to the beneficiaries of the Trust.

For operating a Trust there are two types of contracts – For a Specific Period or Indefinite. As the Contract with the Trust will expire, the redistribution of Assets will commence as per the Trust Deed ((Either return the assets to Settlor or transfer to beneficiaries)

Benefits of Setting Up a Trust?

There are many advantages in having a Trust for the asset owners. Trust is a type of Special Purpose Vehicle that business owners use to secure their wealth and pass it on to the next generation or other beneficiaries without losing the value of the assets.

They are beneficial to the asset owner in many ways. It also helps in better tax planning, safeguarding wealth, maintaining confidentiality of ownership, etc. Also, some business owners prefer to share their business income and other assets with charity or other beneficiaries after their time.

trust and foundation in uae

Forming a Trust is helpful to keep the business and assets intact for the future under the ownership of a Trust. The Trust will manage and operate the businesses and provide a share to the beneficiaries as per the contract.

Trusts in UAE and Regulations

Trust in UAE is seen as a legal entity and it must be compliant with the Commercial Company Laws of the UAE. Trusts can be established in Mainland and Free Zones.

The Dubai International Financial Center (DIFC), a reputable Free Zone enables the set up of a Trust in Dubai. The Trust set up in DIFC is beyond the applicability of the UAE Trust Law. The Free Zones have their specific regulations to follow.

trust and foundation in uae

In DIFC, there are various types of Trusts depending on the specific requirement, the settlor can choose the right business type for their Trust. There is a Charitable Trusts setup specifically for charitable purposes. Non-charitable trusts for holding or investing in shares of a company or other assets.

Then, there are Express Trust and Protective Trust. Express Trust is where the settlor declares their intent in writing or a written declaration from the trustee. Protective Trust is for securing the assets in the trust for continuing the support of the beneficiary.

Setting up a Trust in the UAE Mainland

The Trust can be created in the UAE Mainland in two ways. First, it is the issuing of a Trust Instrument that will enable the settlor to transfer their assets to a Trust to manage and oversee the business.

Secondly, it is drafting a Will that will come into effect after the death of a settlor. All the assets of the settlor will move to a trust after the death.

In the Mainland of Dubai, it is the Ministry of Finance’s decision to approve the sanction for operating a Trust. After the document analysis, the authorities will issue the certificate and contract for the Trust. So, the Trust can officially take over as the signing authority and manage the assets of the settlor.

Apart from the Mainland, The Free Zones such as DIFC, Abu Dhabi Global Market (ADGM), and RAKICC have the provision to open a Trust in UAE.

Foundations – An Alternative to Trust

A Foundation is an independent legal entity and shares the similarity of a company and a trust. It is bound by a contract created by the founder. It is a Special Purpose Vehicle used for asset protection, tax savings, and succession planning.

There are Council Members (nominated by the founder himself) along with the Founder in the Foundation’s governing body. It is established by the Founder providing initial assets for operating as specified in the contractual agreement.

The founder will appoint a Council to oversee the foundation’s operations. They will act in good faith as per the regulations and contractual agreement. The Council will be managing and overseeing the activities of the Foundation.

Almost similar to a Trust, however, to register a Foundation with the Chamber of Commerce, there is no immediate transfer of funds a requirement unlike in a Trust.

Setting Up a Foundation in RAKICC

RAKICC has a new business type named ‘Foundations’. It provides a platform to register a Foundation and dedicate certain assets towards specific charitable or non-charitable purposes.

Foundations can be set up for many purposes including financial restructuring, succession and tax planning, private wealth management, asset protection, charitable efforts, and more.

Foundations set up in RAKICC have the additional flexibility of converting their existing RAKICC Company to RAK Foundation. Also, they can migrate and amalgamate the FOundation into other entities by adhering to the compliance regulations.

Additionally, the RAKICC Foundation can approach the DIFC or ADGM to hear out disputes. RAKICC also has a family office business type that is ideal for large family businesses.

Connect with our expert Business Consultants to learn more about the Trust, Foundations, and Family Business in UAE.

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