How to Set Up an ADGM Foundation in the UAE

The option to register a foundation in ADGM has become an important tool for investors. It helps those who wish to use the UAE’s advantages as an international financial centre. The ADGM foundations regime was introduced in 2017 through dedicated legislation. It was the first initiative of its kind in the Middle East. What sets ADGM foundations apart, and what are their main uses? We answer these questions in this article.

What is ADGM?

Abu Dhabi Global Market (ADGM) is a UAE free zone. It was established in 2013 and became fully operational in 2015. Today, ADGM is one of the largest financial centres in the region.

The following features set the ADGM free zone apart:

• Corporate regulation and dispute resolution based on English common law.
• Its own institutions, including a financial regulator and courts (FSRA and ADGM Courts).
• Fast company formation in various legal forms.
• The ability to obtain a licence to conduct investment activity.

These features create a separate legal regime within ADGM. It is distinct from the laws of the UAE and the Emirate of Abu Dhabi. This is important for ADGM foundation registration. English common law is one of the most suitable frameworks to set up and manage such investment structures.

Foundations and Trusts: Overview and Purpose

Foundations, like trusts, are tools for asset protection and asset management. In both structures, the founder or settlor transfers assets to a third party to manage them for the benefit of the beneficiaries.

However, there are differences between these structures, which can be summarised as follows:

Trusts	Foundations
A trust is not a separate legal entity. It is a legal relationship between: the settlor, the trustee, and the beneficiaries of the trust.	A foundation is incorporated as a separate legal person. It owns assets and enters into dealings with third parties in its own name. This gives the foundation more structure and stability than a trust. A foundation has no shareholders or share capital, and its beneficiaries are not owners.
A trust is created and governed by a trust deed.	The core documents of a foundation are its charter and its by-laws.

Among the main objectives common to both trusts and foundations are:

• protecting assets from claims or actions in various legal proceedings (bankruptcy, divorce, and others);
• managing assets for specific purposes and/or for the benefit of designated persons;
• establishing a clear succession plan for transferring assets to heirs;
• facilitating major investments;
• tax optimisation.

Next, we explain how a foundation operates within the ADGM legal framework.

Characteristics of an ADGM Foundation

The establishment and management of an ADGM foundation are governed by the ADGM Foundations Regulations 2017. The 2017 Regulations set out:

• the process for registering a foundation;
• the foundation’s constitutional documents and assets;
• the powers of the key persons within the foundation; and
• the process for winding up the foundation.

Procedure for registering an ADGM foundation

An ADGM foundation may be established for any purposes that are not contrary to ADGM or UAE law or public policy, including:

• managing assets and income; and
• distributing assets and income in accordance with the foundation’s “Charter”.

A foundation must not pursue charitable purposes.

Registration of an ADGM foundation is carried out by filing an application with the ADGM Registration Authority together with the following documents:

Document	Description
Foundation Charter	The core constitutional document of the foundation. It governs its activities and purposes (see the section below). Must be signed by one or more founders.
Declaration of Compliance	Confirms that all requirements for foundation registration are satisfied. Must be signed by the applicant.
Application for Licences	Required if the foundation’s activities need a licence under the Commercial Licensing Regulations 2015.
Confidential Information Disclosure	Must disclose the names and addresses of all persons involved in the foundation’s structure: council members; founders; beneficiaries; and guardians (if appointed). The Registration Authority keeps this information confidential, except where disclosure is required by ADGM law.

Depending on the risk level of the application, the Registration Authority may require the applicant to sign a “source of wealth” declaration and provide supporting documents.

In addition, the prescribed registration fee must be paid.

Once the documents are received and verified, the ADGM Registration Authority registers the foundation and issues a Certificate of Registration.

Key documents and assets of the foundation

The foundation’s Charter (the “Charter”) is a key document at establishment. It sets the legal basis and structure. The ADGM Foundations Regulations 2017 set out the information that must be included in the Charter. This includes:

• the foundation’s name;
• the names and addresses of the founder(s);
• the general objects of the foundation or the specific purpose for which it was established;
• a description of the initial assets transferred by the founder(s);
• provisions on establishing the Foundation Council;
• details of the person who will become a beneficiary if the other beneficiaries cease to be beneficiaries;
• the name and ADGM address of the foundation’s registered agent (if any);
• the address of the foundation’s registered office within ADGM (this address may be provided by the registered agent, without any need for physical presence in ADGM);
• the duration of the foundation or the conditions for its winding up.

In addition, the Charter may include provisions on the Foundation Council, beneficiaries, the guardian, and other aspects of its operation.

Besides the Charter, the foundation must have By-laws (the “By-laws”). These govern internal management and day-to-day operations. In particular, the By-laws set out details on:

• the functions of the Foundation Council,
• the process for appointing and removing Council members,
• processes for the distribution of assets,
• adding or excluding beneficiaries, and
• other matters.

Any property may be transferred into an ADGM foundation as assets. To register a foundation, the initial assets must be at least US$100, or the equivalent in another currency.

Key parties in an ADGM foundation

An ADGM foundation’s founder (the “Founder”) may be an individual or a body corporate. A foundation may have more than one Founder.

A foundation must have a Foundation Council (the “Council”) with at least two members. Members may be individuals or bodies corporate. The Founder may also be a member of the Council.

The Council is responsible for:

• delivering the foundation’s stated objects;
• managing the foundation’s assets; and
• carrying out any other actions required by the Charter, the By-laws, or the ADGM Foundations Regulations 2017.

Before registration, Council members are appointed by the Founder. Afterwards, appointments follow the procedure set in the Charter or the By-laws.

The foundation’s Guardian (the “Guardian”) is appointed as follows:

Mandatory appointment	Optional appointment
Death of the Founder. In this case, the Guardian is appointed by an authorised person or by a court order.	In other cases, the Guardian may be appointed if this is provided for in the Charter or the By-laws.

The Guardian of an ADGM foundation may be an individual or a body corporate. However, the Founder, any member of the Council, or the sole beneficiary cannot act as Guardian. The Guardian’s main role is to protect the foundation’s interests and ensure that they are upheld.

A beneficiary of a foundation may be an individual or a body corporate:

• whose name is stated in the Charter or the By-laws; or
• whose identity can be determined by reference to a class of persons, or by that person’s relationship with another person.

The Founder may be a beneficiary, but may remain the sole beneficiary only during the Founder’s lifetime.

The Charter may impose obligations on beneficiaries as a condition of receiving benefits from the foundation.

For ease of dealing with government authorities in ADGM, a foundation may appoint a registered agent. Appointment of a registered agent is optional.

Winding up of a foundation

A foundation may be wound up in the following circumstances:

• on expiry of its term, if it was set up for a fixed period;
• when its object has been achieved or has become impossible to achieve;
• if required by the Charter or the By-laws;
• inability to pay its debts;
• where legislation requires the foundation to be wound up; or
• pursuant to a court order.

If the foundation is wound up due to inability to pay debts, the Council must appoint a liquidator. In other cases, appointing a liquidator is not mandatory.

On winding up, the foundation’s assets are distributed equally among the beneficiaries, unless the Charter provides otherwise. The winding up ends with the issue of a certificate of dissolution and the removal of the foundation’s record from the register.

Advantages of registering an ADGM foundation

Using a foundation in ADGM offers a range of advantages. It is an effective tool for different purposes. In particular:

Advantage	What it involves
Flexible governance structure	The Founder may combine several roles within the foundation’s structure. The Founder may appoint Council members, set governance procedures, set asset distribution, and define beneficiaries. All roles may be held by individuals or bodies corporate.
Separate legal person	The foundation’s status as a separate legal person allows it to: act in its own name to pursue its objects; clearly separate the Founder’s liability from the foundation’s liability; and continue after the Founder’s death.
Favourable tax regime	Subject to conditions, ADGM foundations may benefit from a 0% corporate tax rate on foundation income.
Confidentiality	Information about the foundation’s key persons is filed with the government. It is not publicly available.
Low establishment cost and low operating expenses	The initial assets must be at least US$100. A registration fee of US$200 is also payable. An ADGM foundation does not need a physical office within ADGM.

Conclusion

The developed legal system and stable regulation in the Abu Dhabi Global Market (ADGM) create a favourable environment for registering a foundation that fits the founders’ specific needs and goals.

Foundations in this jurisdiction offer clear advantages. These include confidentiality, asset protection, relatively simple registration, and a low barrier to entry. Therefore, an ADGM foundation is an effective solution for both private individuals and companies.