DIFC Foundations for Family Business Succession

Understanding the Legal Framework of DIFC Foundations for Family Business Succession

Family businesses are the basis of many economies, which have been created over generations-rooted in values, traditions, and long-run views. One of the most pressing concerns such businesses face is succession planning: ensuring leadership, assets, and effective transfer from one generation to the next. Families in the UAE now have a sophisticated legal structure that addresses the issue of family succession inheritance: the DIFC Foundation.

Given under the DIFC Foundations Law No. 3 of 2018, DIFC Foundations present precious opportunity for the effective management of family wealth and are the best option for business continuity. Unlike trusts, these foundations are distinct corporate bodies, which can own assets and carry on business operations while enforcing governance arrangements within clearly laid-down legal frameworks. They are perfect for succession planning, offer greater asset protection, privacy, and long-term control of family businesses.

The blog takes a tour of the legal landscape of the DIFC Foundation and the means through which these can serve as tools for the succession of family businesses. If you are a founder with a plan to transfer your legacy to your descendants and/or a lawyer assisting in generational transfer of wealth, it is highly pertinent to understand DIFC Foundations in the fight for stability and continuity and the fostering of prosperity for future generations.

DIFC Foundation – An Overview

DIFC Foundation is a legal entity that has been established with reference to the DIFC Foundations Law No. 3 of 2018. Unlike in the case of normal trusts, a foundation is incorporated as a separate legal person and enjoys legal personality in its own right. It may hold its own assets, enter into contracts, and act on its own behalf, independent of the founder. A DIFC Foundation is essentially constituted to hold and manage assets for certain beneficiaries, thus allowing the family wealth and power to continue.

Characteristics of DIFC Foundations

1. Legal Personality

DIFC Foundation has legal personality, and as such, it can hold property, enter into contracts, and perform other acts in its own name. This characteristic makes sure that the assets of the foundation remain separate from those of the founder so that personal liabilities will not extend to the foundation's assets.

2. Organizational Structure

The organizational structure of a DIFC Foundation is set out by its constitutional documents:

• Charter: A public document that sets out the foundation's objectives, principal roles, and description of operational structure.
• By-laws: This is a private document that contains the internal governance laws, including those dealing with decision-making of funds and asset management.

The foundation is managed by a Council composed of at least 2 members. The Founder may also be on the Council but cannot simultaneously be the Guardian. The Guardian, if appointed, oversees the Council to ensure that it acts in accordance with the objectives of the foundation and in line with the founder's intent.

3. Succession Planning

The DIFC Foundations are designed with succession arrangements in view:

• Perpetual Existence: Foundations can be established without any statutory limitation on duration, and thus can subsist after the death of the founder.
• Letter of Wishes: The founders may leave a letter of wishes to guide the Council, which is not binding but does allow for flexibility in the disposition of the assets as circumstances change.
• Beneficiary Designation: The founder may designate beneficiaries including family members and revise the list at any time.

4. Asset Protection

The provisions of the DIFC Foundations Law protect the assets of the foundation from forced heirship claims, creditor claims, and foreign judgments, provided that the disposition is done in accordance with the laws of the DIFC.

5. Tax Efficiency

DIFC Foundations thrive on the tax efficiency nexus of the UAE. Presently, qualifying activities attract low charge of corporate tax, no income tax, nor capital gains tax within the area of the DIFC. It is this tax neutrality that promotes the efficient transfer and management of wealth.

Advantages of Using DIFC Foundations for Family Business Succession

1. Control and Flexibility

The founders can keep controls of the foundation assets and operations to a large extent even after their death. Amendments to the charter and the by-laws; appointments and removal of council members; and designation of beneficiaries can all be effected in a way that affords flexibility with respect to changing family and business needs.

2. Privacy and Confidentiality

Unlike wills that become public after probate, the information related to the assets of the estate or beneficiaries is kept confidential. As such, this privacy protects the family from any dispute and also affords the beneficiaries a degree of protection from unwanted publicity.

3. Continuity and Stability

Being perpetual, DIFC Foundations confirm stability through continuity of families that have confirmed in their own way to generate wealth and business interests through generations in accordance with the wishes of the founder.

4. International Recognition

Since a DIFC Foundation is constituted under the common law framework of the DIFC, it is also endowed with the privilege of functioning in an area that rates pretty high on the scale of flexibility, transparency, and international recognition. Such international recognition comes in useful when it is time to manage assets and succession across borders.

How Does Flyingcolour Business Setup Help in Using DIFC Foundations for Family Business Succession?

Flyingcolour Business Setup, one of the premier consulting firms in the UAE, acts for family business succession through the establishment of DIFC Foundations. With more than 20 years of experience, and having been providing full-suite turnkey solutions with legal structuring, governance structuring, and the protection of assets, it is eminently qualified to assist in enabling the smooth transition of wealth and business interests across generations.

Expertise in DIFC Foundations

Our highly experienced professionals provide specialized support and advisory services in the incorporation of DIFC Foundations and DIFC Foundations are powerful legal entities formed under DIFC Foundations Law No. 3 of 2018. These foundations offer families a structured method to manage and preserve wealth concerning the major issues of asset protection, privacy, tax planning, and succession planning.

Succession Planning On Demand

Understanding the uniqueness of every family business, the team provides tailor-made solutions to succession planning issues. These solutions cover family constitutions, governance structures, and transparent instructions for the disposition of assets, ensuring that the founder's exact wishes are fulfilled, while allowing some measure of stability and continuity for future generations.

Integration with UAE's Legal Framework

We guarantee that the DIFC Foundations are harmonized with the UAE legal framework, including the Family Business Law (UAE Decree-Law No. 37 of 2022). Succession planning for the family business is very much interwoven in this arrangement and hence shall bring about the smooth transition while preventing potential legal complications and contingencies.

Comprehensive Support Services

Besides establishing foundations, the team provide other services for family businesses such as corporate governance, tax compliance, and asset management. This holistic viewpoint encompasses and permeates all family business succession aspects, thus bringing reassurance to either founder or beneficiary.

Accordingly, Flyingcolour Business Setup has proven sources of assistance with family business succession through DIFC Foundations. Their qualities, together with individually tailored services and ongoing support, allow family businesses to pursue their succession planning with confidence and clarity.

People Also Ask:-

Q1. Can a DIFC Foundation own real property outside the DIFC?

A: Yes, a DIFC Foundation may acquire real property within and outside the DIFC, such as in other Emirates including Dubai, thereby allowing families in managing and transferring their real estate assets.

Q2. What happens if the founder becomes incapable?

A: If found incapacitated, the foundation council shall continue with managing the assets in accordance with the charter and by-laws. Subsequently, if upon appointment of a guardian to oversee said council, the founder's wishes shall likewise be honored.

Q3. Can a DIFC Foundation be amended post establishment?

A: Yes, the founder has the power to amend or revoke the foundation's Charter and By-laws throughout his or her lifetime, offering flexibility to suit changing circumstances.

Q4. Will there be any tax implications on the beneficiaries?

A: Taxation is imposed on beneficiaries according to their tax jurisdiction. However, due to the tax neutrality of the DIFC, such a foundation is itself exempt on taxes, namely corporate tax, income tax, or capital gains tax. 

Q5. What distinguishes a DIFC Foundation from a trust?

A: Both serve as means for managing assets ultimate in the benefits of beneficiaries; however, a DIFC Foundation is a separate legal entity endowed with legal personality, whereas a trust is a fiduciary mechanism lacking independent legal existence. Hence, foundations thus differ from trusts in that they are afforded greater autonomy and flexibility in deciding the method of asset management.

Therefore, to learn more about The Legal Framework of DIFC Foundations for Family Business Succession, Book a free consultation with one of the Flyingcolour Business Setup team advisors. 

The article was published on 27/05/2025. It is important to note that the federal policies and updates mentioned may have changed since then. For the most current information, please contact our consultant!