Global asset management quarterly - The Middle East

ADGM Foundations Regime

Authors: Jane Clayton and Ola Al-Kadi

The ADGM has recently introduced a new regime for financial planning and structuring.

In August 2017, the Abu Dhabi Global Market (ADGM), a financial free zone established in the emirate of Abu Dhabi for local, regional and international institutions, published the Foundations Regulations 2017 (the Regulations).

The Regulations, the first of their kind in the UAE, provide for foundations to be established in the ADGM as an alternative to the traditional trust structure (the Regime).

The Regime has been developed in accordance with internationally recognised best practice and in close consultation with the advisory community. Following the expiry of the consultation period earlier this year, the ADGM Financial Services Regulatory Authority elected to broadly model the Regulations on the equivalent frameworks applicable to Jersey and Guernsey.

In practice, the Regime is likely to be used by corporations, funds and high net-worth individuals that currently have their wealth managed overseas in other offshore jurisdictions. In order to migrate to the ADGM Regime from another offshore location, the foundation must establish a substantive presence in the ADGM, either itself or through a ‘registered agent’.

Foundations, like trusts, can be used for a variety of purposes, including: wealth management; succession planning; asset protection; and tax planning. Unlike a trust, however, a foundation:

• Is an incorporated entity with a separate legal personality; and
• Is capable of holding assets in its own name on behalf of beneficiaries or for particular purposes (or both), and operates in accordance with a constitution.

The ADGM has had to balance the level of confidentiality that will be desired from the end users of the Regime, with the ADGM’s principles of transparent ownership and the UAE’s various international treaty obligations. The result of this balancing exercise is a two stage disclosure process that forms part of the overall formation/registration process. The disclosure process is comprised of: 

• Public disclosure – in the form of a written charter, which contains limited, publically available information and is supplied to the Registrar upon registration of the Foundation; and
• Confidential disclosure – in the form of by-laws (of which a model form is provided by the ADGM) which would remain private, subject to any requirement on the Registrar to disclose such information to public authorities as set out in the Regulations, or other applicable laws or regulations.

The remainder of the registration process is made up of: (i) a declaration of compliance, signed by the applicant, affirming that all requirements of the Regulations relating to registration have been fulfilled; and (ii) payment of the relevant fee.

The key benefits of setting up a Foundation (as opposed to the traditional trust structure) in the ADGM include:

• Distinct legal personality - having a legal personality provides foundations with flexibility to enter into contracts and arrangements directly, as a company would be able to;
• Separation of liability and assets – foundations are a distinct legal entity which allows for separation of liability between its founders and the foundation;
• Robust governance structure – the foundation is controlled by a ‘Foundation Council’ (equivalent to a Board of Directors) and the Foundation Council is overseen by an appointed ‘Guardian’;
• Enhanced asset protection - increased protection from bankruptcy claims and from the effect of heirship rules; and
• Migration of foundation – the Regulations expressly provide for the migration of foundations between jurisdictions.

The Regime clearly provides a new option for those corporates and/or individuals that wish to take advantage of the foundation structure for financial planning. Whether the Regime can attract the target audience it intends to remain to be seen but there is certainly optimism in the local market about this new opportunity.