DIFC Foundations: How a UAE Foundation Works for Succession and Asset Holding

Direct answer. A DIFC foundation is a legal person created under the DIFC Foundations Law (DIFC Law No. 3 of 2018) that owns assets in its own name and applies them for purposes its founder sets out, usually the benefit of named family members, a class of relatives, or a charity. It is not a company and not a trust. It has no shareholders, its property is not held on trust for anyone, and a council of at least two members runs it under a charter and by-laws. Families use it to keep assets together across generations, to fix who benefits and when, and to avoid having a family holding split up when someone dies. The law says an heirship right under a foreign law is not recognised as affecting ownership of DIFC real estate or of movable property, but it also sets clear limits. How those limits meet onshore UAE inheritance rules is a question for a licensed lawyer. Abu Dhabi Global Market (ADGM) has its own foundations regime. A will or a company is often the simpler tool, and this guide shows where each one fits.

What a DIFC foundation is, and what it is not

The Foundations Law gives a foundation four defining features. Each one is in the statute, which the DIFC publishes in its legal database of DIFC laws.

• It is a separate legal person. Article 10(1) calls a foundation "a body corporate with a legal personality separate from that of its Founder(s) and any other person". It can own shares, bank accounts and other property in its own name.
• It is not a trust. Article 10(3) says the foundation's property "is not held by it upon trust for any other person". Nobody holds the assets for someone else; the foundation owns them outright.
• It is not a trading business. Article 12(5) bars commercial activity, except activity "necessary for, and ancillary or incidental to, its objects". A foundation holds and manages; an operating company trades.
• It can last as long as you want. Under Article 11, a foundation can be set up for a fixed period, until a set event, or with no end date at all.

Its objects can be wholly charitable, or private: Article 12(2) allows objects "to benefit persons by name, category or class". That is the clause that makes a family foundation possible. The objects must be "certain, reasonable and possible" and lawful.

The founder does not own the foundation either. Under Article 27(4), a founder "does not have any interest in a Foundation by virtue only of endowing it" with assets. Whatever rights the founder keeps come only from the by-laws (Article 10(4)) and from powers reserved in the charter, covered below.

Who does what: founder, council, guardian, agent and recipients

A few rules in this table cause real problems if missed:

• Council members owe fiduciary duties. Under Article 22(8) they must act honestly and in good faith in the foundation's best interests, use the care of a reasonably prudent person, and declare any personal interest in a transaction.
• The guardian polices the council. Article 23(7) requires the guardian to take reasonable steps to make sure the council does its job. The guardian can demand an account of how the property has been run. A guardian keeps records for six years after the role ends.
• A guardian cannot also sit on the council. Articles 22(6) and 23(6) make such an appointment void.
• Recipients have a right to be paid, not a share of the assets. Article 29(3) says a qualified recipient has no right to the foundation's property beyond the payments the by-laws provide. If a payment that is due is not made, the recipient can ask the DIFC Courts for an order, but within three years of learning of the entitlement. For a minor, that clock starts at 18.
• An empty default clause has a cost. If the charter and by-laws name no default recipient, leftover property becomes the DIFC Authority's on termination (Article 21(3)).

The charter and the by-laws

A foundation's constitution is two documents (Article 18).

The charter must be in English (Article 19(1)). It states the foundation's name, its objects, a description of the initial capital, its duration if limited, and a declaration by each founder asking the council to follow it. It can be changed only if the charter itself allows it, or by court order. An amended charter must be lodged with the Registrar within 30 days.

The by-laws carry the working rules (Article 20). They must set out the council's functions and how council members and any guardian are appointed and removed. They must also say whether those people are paid, how decisions are made, and what happens to any property left when the foundation is wound up. They may also set how property is distributed or accumulated, add or remove recipients, attach conditions to payments, and cut off a recipient who goes bankrupt.

The law allows the DIFC Authority to publish model wording, a "Standard Charter" and "Standard By-laws" (Articles 19(7) and 20(5)). Ask your registered agent what model text is currently available, and treat it as a starting point rather than a finished document.

What is public and what is not

The public Register holds the foundation's name and registered office, the founders' and council members' names, any guardian's name, and the registered agent's details (Articles 22(4), 23(4) and 35(2)). Nationality and home address are kept off it (Article 35(2)). Anyone can inspect the Register for a fee. A certified copy of the charter goes only to a "Person with Sufficient Interest" (Article 35(5)). The law's list of such persons includes the foundation itself, a founder, a contributor, a council member, the guardian, the registered agent and a person appointed under the by-laws. A beneficiary is named on that list only for a court application to force a payment that is due (Article 29(4)), though the DIFC Courts can recognise other people, including a beneficiary, as having sufficient interest (Article 39(4)). The by-laws are not part of the Register. So a foundation is more private than many people expect, but the founder's name is not secret.

How much control the founder can keep

This is usually the first question founders ask. The answer is in Article 26.

• By default, none. A founder cannot reserve power to amend the charter or by-laws, or to end the foundation, unless the law's exception is used.
• The exception: a founder may reserve the power to amend, revoke or vary the charter, the by-laws or the objects, and the power to terminate the foundation. The power must be "detailed in full in the Charter".
• Time limits: a reserved power lasts no longer than the founder's life if the founder is an individual, or 50 years from establishment if the founder is a company. After that it lapses, whatever the charter says.
• More than one founder: a shared reserved power must be used unanimously unless the charter says otherwise.

A founder can also sit on the council (Article 22(3)) or act as guardian (Article 23(3)), though not both. Keeping too much control, however, can undercut the reason for setting up the foundation, especially for tax and creditor purposes. Get advice before writing broad reserved powers into the charter.

Succession: what the heirship-rights rule does, and its limits

Most families looking at a foundation want to know whether it will hold their assets together after a death. The law is strong on this point, but it is not unlimited.

What it does. Article 13(1) says matters about a foundation are decided under DIFC law "without reference to the laws of any other jurisdictions". That includes the validity of transfers into it and how it is run. Article 14(1) adds that a transfer valid under DIFC law cannot be set aside because a foreign law gives someone rights by way of "Heirship Rights" or a family relationship. Article 15 says an heirship right under foreign law, in relation to a living person's property, is not recognised as affecting the ownership of DIFC real estate, or of movable property wherever it is, for the purposes of the Article 13(2)(a)-(b) limits or any other purpose. An "Heirship Right" here means a right arising because of a person's death; it does not include rights the person created by their own will or gift.

What it does not do. Article 13(2) sets six limits. Four matter most for families:

1. It does not validate a transfer of property the founder did not own or have power over.
2. It does not validate a transfer of real estate located outside the DIFC if that transfer is invalid where the property is.
3. It does not validate a testamentary disposition, meaning a gift that takes effect on death, that is invalid under the law of the person's last domicile.
4. It does not stop a foreign law from deciding whether the founder owned the asset, or had power to dispose of it, in the first place. A marital-property rule abroad, for example, can still matter.

There is also a creditor exception. Under Article 14(3)-(4), if a court finds the founder meant to defraud a creditor and the transfer left the founder insolvent, the foundation is liable for that creditor's claim. The liability is limited to the property transferred and anything it has grown into.

The open question. The law defines "Foreign Law" as "any law other than DIFC Law". How these articles interact with onshore UAE inheritance rules, including the fixed shares that apply to Muslims, is not something this guide can settle, and you should not assume a foundation overrides them. A Muslim founder in particular should take advice before moving assets. Our guides on Sharia wills for Muslims in the UAE and non-Muslim wills in Dubai explain the inheritance rules a foundation sits alongside.

Foundation, company or will?

These three tools solve different problems, and many families use more than one.

A will is often enough for a single property and some bank accounts. LEXAI's guides cover DIFC will registration and choosing between DIFC, ADJD and notary wills. A company suits an active business, and our guide to offshore companies at RAK ICC and JAFZA explains holding companies that sit outside the local market. A foundation earns its cost when you want assets held together for decades, with fixed rules on who benefits and a council and guardian to enforce them.

The structures can also convert. Under Article 63, a DIFC company can apply to continue as a foundation if all its shareholders agree unanimously, and Article 66A lets a DIFC foundation continue as a company if its charter and by-laws permit it and its council members agree unanimously.

Running a DIFC foundation: the ongoing duties

A foundation is not a set-and-forget document. The law imposes ongoing duties, with fines in Schedule 3 for missing them.

• Accounts. The council approves the annual accounts and at least two members sign them. Within 30 days of approval, they go to the Registrar or, if there is one, to the registered agent (Article 33).
• 30-day notices. Changes to the council, the guardian, the registered agent or the by-laws must be notified within 30 days (Articles 20(6), 22(11), 23(14) and 24(4)).
• Licence. A registered foundation receives a licence and must hold one under the DIFC Operating Law (Article 17(6)-(7)).
• Beneficial ownership. The DIFC lists its Ultimate Beneficial Ownership Regulations 2018 as regulations related to the Foundations Law, so expect beneficial-ownership filings.
• Information requests. A "Person with Sufficient Interest", such as a founder, council member or guardian, can ask for financial statements and details of how the property is run. The foundation can refuse if its charter or by-laws forbid disclosure, unless the DIFC Courts order it (Article 53). A beneficiary has no general right to information unless the charter or by-laws give one. As of right, the law names a beneficiary only for a court application to force a payment that is due (Article 29(4)); otherwise the DIFC Courts decide whether a person, such as one who can speak for the foundation's objects, has sufficient interest (Article 39(4)).

Where disputes go

The "Court" in the Foundations Law is the DIFC Courts. Under Article 39, the court steps in when a Person with Sufficient Interest asks it to, or where the law provides; a foundation is not under continuing court supervision. If the charter or by-laws say disputes go to arbitration, Article 51 treats that clause as an arbitration agreement. Our guide to the DIFC Courts' structure and jurisdiction explains how that court works.

ADGM foundations: how Abu Dhabi's version compares

ADGM runs a separate foundations regime under its own Foundations Regulations, administered by the ADGM Registration Authority. Its registration checklist, linked from ADGM's setting-up page, sets out the practical requirements:

ADGM adds other points. The name must end with the word "Foundation". At least one authorised signatory must be a UAE or GCC national or hold a valid UAE residence visa. A sole beneficiary cannot be the guardian. A "designee" is needed if no beneficiary is nominated. The application must include a purpose statement from the service provider and evidence of the assets to be held, and a source-of-wealth declaration may be requested depending on risk. ADGM publishes model charter and by-laws on its website. For fees, the checklist points to ADGM's published schedule of fees.

Ras Al Khaimah's RAK ICC is a third registrar people ask about. We could not check its current foundation rules for this guide, so confirm its requirements directly with RAK ICC before comparing it.

Corporate tax: the family foundation election

Article 17 of Federal Decree-Law No. 47 of 2022 on Corporate and Business Tax lets a "Family Foundation" apply to the Federal Tax Authority to be treated as an Unincorporated Partnership (the English text of the Decree-Law calls it an "Unincorporated Association"). Under Article 16, such a partnership is not itself a taxable person. Its assets and income are attributed to the people behind it in proportion to their shares, and each one's own tax position then applies.

All of these conditions must be met:

1. It was set up for the benefit of identified or identifiable individuals, a public benefit entity, or both.
2. Its principal activity is receiving, holding, investing, spending or disposing of savings and investment assets, or otherwise managing them.
3. It does nothing that would count as a business if the founder or beneficiaries held the assets directly.
4. Its main purpose is not avoiding corporate tax.
5. It meets any further conditions the Minister sets.

If approved, the treatment can start from the tax period of the application, a later period, or another date the Authority sets. The Authority can ask for records to check the conditions are still met. Tax depends on your assets, your residence and your beneficiaries' residence, so take advice from a tax adviser before relying on this election.

Setting up a DIFC foundation: the sequence

1. Decide what it is for. List the assets, the beneficiaries, the rules for payments, and what should happen in 30 years. This becomes the objects and the by-laws.
2. Choose the jurisdiction. DIFC, ADGM or another registrar, using the comparison above.
3. Appoint a registered agent or service provider. In the DIFC this must be a firm licensed for that activity (Article 17(4)).
4. Draft the charter and by-laws. Decide council members, any guardian, reserved powers, distributions and the default recipient.
5. File the application. Article 17(2) lists what it must include. That means the name, the registered office in the DIFC, and each founder's and council member's name, nationality and address. It also means the registered agent, the charter, and the by-laws unless a registered agent is appointed.
6. Registration. The Registrar registers the foundation, asks for more information, or refuses. On registration it issues a certificate, a registered number and a licence (Article 17(5)-(6)).
7. Move the assets in properly. The initial capital "may comprise any property" (Article 27(2)), but each asset still transfers under its own rules: shares under the company's rules, real estate under the land registry's rules. Do not assume a foundation can take title to a particular Dubai property; check the land authority's current rules first.

The DIFC and ADGM set their own registration and annual fees, which can change. Check the current schedule with the registrar or your agent before you budget.

Mistakes that undo the plan

• Reserving every power. Broad founder control can defeat the purpose, and reserved powers lapse at the founder's death, or after 50 years for a company founder.
• Leaving assets outside it. A foundation protects only what was validly transferred into it.
• Skipping the basics covered above: trading through it, naming no default recipient, putting the guardian on the council, assuming it overrides onshore inheritance law, and missing the 30-day filings.

When to get legal help

A foundation is a long-term structure, and drafting errors surface years later, often after the founder has died. Speak to a lawyer before signing if family members of different faiths or nationalities are involved, or if any asset is real estate. The same applies if you are moving an existing company into the structure or want to rely on the tax election. You can find a corporate and commercial lawyer or a family law lawyer on LEXAI and contact them directly. To frame your questions first, try the LEXAI AI assistant.

This is general legal information, not legal advice. Confirm the current rules with the DIFC or ADGM registrar or a licensed UAE lawyer.