Trusts and Foundation Solutions for Real Estate Investments in the UAE

Dubai offers international investors, particularly family offices, various legal structures for managing and protecting real estate assets. Two of the most prominent options are trusts and foundations. Both have specific advantages and can serve different purposes depending on the investors’ goals and needs.

Trusts and Foundations

Trusts and foundations provide effective tools in Dubai for managing and protecting assets, especially in the real estate sector. These legal structures offer international investors comprehensive opportunities to optimize their investments and ensure sustainable asset protection.

Trusts

The United Arab Emirates (UAE) introduced the “UAE Federal Law No. 5 of 2018 on the Law of Trusts” in 2017. This law provides a modern legal framework for trusts that meets international standards. A trust must be managed by a registered trustee, and the regulations regarding the establishment, administration, and dissolution of a trust are clearly defined.

Trusts offer protection from creditors and legal claims. They allow assets to be safeguarded from financial risks and legal disputes. By setting up a trust, real estate and other assets can be managed and passed on to heirs according to the wishes of the settlor. Trusts may offer tax benefits, particularly with regard to inheritance tax, which is not levied in Dubai.

Foundations

In 2019, Dubai introduced the “Dubai International Financial Centre (DIFC) Foundations Law,” which provides the legal framework for foundations in the DIFC. A foundation can be established for private, charitable, or business purposes and offers a flexible structure for managing assets.

Foundations offer protection from creditors and legal claims, similar to trusts. Foundations facilitate the long-term management of real estate assets, which is particularly advantageous for family wealth and business purposes. Foundations benefit from tax exemptions on capital gains and inheritances in Dubai.

Registration of foundations occurs with the relevant authorities in the DIFC or other applicable jurisdictions.

Taxes on Foundations and Trusts:

Dubai imposes virtually no income tax on real estate earnings, which is beneficial for foundations and trusts. Foundations also benefit from tax exemptions on capital gains and inheritances. Since June 2023, a corporate tax of 9% applies to business profits over AED 375,000. This primarily affects businesses and only partially impacts trusts or foundations unless they engage in business activities. Dubai has no inheritance tax, which simplifies estate planning through foundations and trusts. A trust facilitates estate planning and allows for a smooth transfer of assets to heirs without extensive probate proceedings.

Advantages for Family Offices:

Foundations and trusts offer effective protection for the assets of family offices, especially in international investments. The tax benefits in Dubai enable effective tax optimization for real estate investments. Both structures provide flexibility in managing real estate assets and can be tailored to the specific needs of the family office.

Asset Protection and Fiduciary Solutions

The legal framework in Dubai provides robust protection for assets through trusts and foundations. The legislation protects against unlawful claims and offers security for international investors.

Trusts are flexible regarding the management and distribution of assets. The terms can be designed to meet specific requirements and wishes. However, setting up a trust can be complex and time-consuming. Detailed legal documents are required, and selecting a suitable trustee is crucial. Managing a foundation can also be complex, especially if multiple beneficiaries or purposes are involved. Adherence to the foundation’s objectives requires careful planning and monitoring.

Regulatory Framework:

Trusts: The legal foundations for trusts in the UAE were established by the “Trust Law” in the Dubai International Financial Centre (DIFC). The DIFC is a free zone that provides an independent legal system based on common law. This law regulates the establishment, administration, and management of trusts in the region. Trusts in the DIFC must comply with the provisions of the DIFC Trust Law. This includes registering the trust and adhering to regulations regarding the rights and duties of trustees and beneficiaries.

Foundations: In the UAE, there are specific legal regulations for foundations in free zones and offshore zones such as the DIFC and the Ras Al Khaimah International Corporate Centre (RAK ICC). Both zones offer specific regulations for the formation and administration of foundations. Foundations in the DIFC are subject to the DIFC Foundation Law, while the RAK ICC Foundations Law applies in RAK ICC. Both laws provide clear guidelines for the establishment and management of foundations, including registration and reporting requirements.

Trusts and Foundations in Dubai for German Investors:

For German investors looking to enter the Dubai real estate market or protect assets, trusts and foundations offer valuable instruments. Trusts in Dubai are regulated by the Dubai International Financial Centre (DIFC). The DIFC Trust Law provides the basis for the establishment and management of trusts. German investors must ensure that their trust complies with DIFC legal requirements, including proper registration and adherence to all legal obligations. Establishing a trust in the DIFC requires submitting an application to the DIFC Authority. The trust must be registered in the DIFC Trust Register to be legally valid. German investors must ensure that they meet the DIFC’s legal requirements. Compliance can be complex and requires thorough legal advice.

Foundations in Dubai can be established in the Dubai International Financial Centre (DIFC) or the Ras Al Khaimah International Corporate Centre (RAK ICC). Both jurisdictions offer specific legal regulations for the creation and administration of foundations. Establishing a foundation requires submission to the relevant authority, whether in the DIFC or RAK ICC. Both legal frameworks provide comprehensive guidelines for the management and tax aspects of the foundation.

Rights and Duties:

German investors have the right to establish trusts and foundations in Dubai, provided they meet all legal requirements. They have the right to asset protection through these structures and to transparent information regarding the management and use of the assets.

  • Compliance with the legal requirements and regulations of the DIFC or RAK ICC is mandatory.
  • German investors must ensure that their trusts and foundations meet all regulatory requirements and regularly review them to maintain legal compliance.
  • Compliance Requirements: Foundations in Dubai must adhere to the legal requirements of the DIFC, including filing annual reports and complying with transparency and accountability regulations. It is important to regularly review applicable laws and seek legal advice to ensure compliance.
  • German investors should consider the tax differences between Germany and the UAE. While Dubai offers tax benefits, there may be tax obligations in Germany for worldwide income. It is advisable to obtain tax advice in both Dubai and Germany to optimally manage tax obligations.
  • Regulatory Requirements: German investors should ensure they comply with the specific regulatory requirements for foundations and trusts in Dubai. This includes adherence to DIFC laws and regular review of legal and tax regulations.

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