14 Jun 2019

Q&A with the DIFC on the DIFC Foundation


In an attempt to clarify matters for everyone in the private wealth community, here are the written responses received from the DIFC itself, to questions that many have asked. 

Q1) How can a DIFC Foundation be effectively used for succession planning and restructuring purposes? 

Foundations are globally known as some of the most effective and flexible wealth and succession planning vehicles primarily in civil law jurisdictions, also for Muslim families, mainly because of the separation it allows between legal and beneficial ownership that can be used in a very flexible manner in respect of family assets. Often foundations are used to consolidate family holdings of various assets into a single entity where legal ownership is left in the hands of a qualified council operating in accordance with stated rules in the foundations charter and by-laws and family members become qualified recipients of the beneficial ownership rights of those assets.

Q2) Can a DIFC Foundation be used to hold property in the Emirate of Dubai? 

The MOU agreed between DIFC and DLD includes DIFC Foundations as part of the "DIFC persons" permitted to own land in designated areas in Dubai. We are willing to assist any DIFC Foundation in its dealings with the DLD in this regard.

Q3) Is a DIFC Foundation compliant with Shari'a laws for succession purposes? Please illustrate by way of an example. 

Foundations, like any other corporate vehicle, are quite capable of being Shari’a compliant. It is not advised to use the tools provided by a foundation to circumvent the succession principles laid down by Shari’a. For example, if a Muslim transfers all his assets to a foundation for the sole purpose of benefitting one heir after his death in a way that is not in accordance with Shari’a succession principles, the objects of the foundation may be considered as non-Shari’a compliant.

Q4) In the event of a conflict between DIFC laws and Shari'a law, which law would prevail and why? 

If the charter of a foundation is properly structured and confirmed by Shari’a scholars at inception, there shouldn’t be any conflict between DIFC laws and Shari’a law. In respect of conflict of laws it depends on how the conflict arose. If, for example, an asset outside the DIFC was transferred to a DIFC foundation, a dispute involving the transfer in respect of adherence to Article 361 of the Personal Status Law would be determined by the UAE courts. If, however, the question related to how the asset was dealt with after such transfer, the DIFC Courts shall have jurisdiction. 

Q5) What makes the DIFC Foundation a more attractive option for succession planning purposes as opposed to using a DIFC Holding Company or DIFC Trust? 

Whether a founder/ settlor wishes to use a trust, a foundation or a holding company, or indeed all of them, in his/ her wealth and succession planning in the DIFC is dependent on the circumstances of the situation and what the founder/ settlor wishes to achieve. There is certainly no vehicle or arrangement in the DIFC that is inherently better than the other to achieve this. Each have specific characteristics that may be useful in specific circumstances to achieve a particular outcome. What can be said that the DIFC Foundations Law has been globally recognised as now being the most flexible and representative of one of the best foundation regimes in the world.