Foundations Across Borders: A Global Perspective

Foundations have become essential vehicles for asset protection, estate planning and philanthropy for high net-worth individuals (HNWIs) and family offices. As they become increasingly popular globally, more jurisdictions are introducing or updating regulations to recognise and cater to foundations.

This article provides a comparative analysis of foundation regulations in four key centres: Switzerland, Liechtenstein, and the United Arab Emirates (UAE) financial free zone jurisdictions of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). This article provides a high-level overview of the similarities and differences in the regulatory frameworks, it will also provide insights into how each jurisdiction caters to the needs of global clients, as well as guidance on the expected future development of the regimes in Gulf Cooperation Council (GCC) jurisdictions.

Foundations – The Basics

A foundation is a legal entity created to hold and manage assets for a specific purpose, which can be either private-benefit or public-benefit. Private-benefit foundations typically serve the interests of a family or a specific group of individuals, while public-benefit foundations are usually charitable in nature.

Foundations are distinct from trusts and companies in a number of key aspects. A trust is a legal arrangement whereby one party holds and manages assets on behalf of another party. In contrast, a foundation is an independent legal entity, possessing its own legal personality. This fundamental difference means that, unlike trusts, foundations have the capacity to own property and other assets, engage in contractual agreements, and initiate or face litigation in their own right.

The separate legal personality makes foundations comparable to companies. However, a critical difference is that foundations have an “orphan structure” (meaning there are no shareholders or owners), making the vehicle ideal for asset management and succession planning. Furthermore, while companies are primarily commercial entities established to conduct business and generate profit for their shareholders, foundations are typically established for specific non-commercial purposes.

Globally, the primary uses of foundations include:

• Asset Protection: Foundations can shield assets from creditors, legal claims, and political instability. By transferring assets to a foundation, the founder can ensure that these assets are managed and protected according to the foundation's objectives, providing a layer of security against external threats.
• Estate Planning: Foundations are often used to manage and distribute a family's wealth across generations, allowing for the orderly transfer of assets upon the founder's death while ensuring that the founder's wishes are respected and reducing the potential for family disputes.
• Succession Planning: Foundations can be used to ensure the continuity of family businesses by holding shares and managing the business according to the founder's long-term vision. This can help maintain family control and prevent fragmentation of ownership.
• Philanthropy: Public-benefit foundations are typically established to support charitable causes. They can provide a structured way for individuals and families to contribute to social, educational, and cultural initiatives, often with significant tax benefits.

Switzerland and Liechtenstein: The Veterans

Switzerland

Switzerland has long been recognised as a leading jurisdiction for the establishment of foundations, offering a robust legal framework combined with a high degree of confidentiality. Introduced in the Swiss Civil Code of 1912, foundations have primarily been used as a conduit for charitable and national interest purposes. However, since the early 2000s there has been a growing trend for Swiss foundations to be used for asset protection and as an estate planning vehicle for HNWIs.

Types of Foundations: Switzerland recognises two principal categories of foundations: private-benefit and public-benefit foundations. Private-benefit foundations can include family foundations and employee benefit foundations, while public-benefit foundations are typically charitable.

Regulatory Features: Swiss foundations must be registered with the commercial register and are subject to the supervision of the Supervisory Authority. The foundation's assets must be used for their declared purpose, and the governance structure can include additional bodies such as supervisory or advisory committees.

Liechtenstein

Liechtenstein also has a long history as a popular jurisdiction for foundations, offering a flexible legal framework and favourable tax treatment. Foundation legislation in Liechtenstein dates back to the 1920s and has evolved to become a popular structuring vehicle.

Types of Foundations: Liechtenstein also recognises private-benefit and public-benefit foundations.

Regulatory Features: Liechtenstein foundations do not require a licence to operate but must notify the Foundation Supervisory Authority upon formation. They are not subject to mandatory supervision unless conducting commercial business. The governance structure is flexible, allowing for various additional bodies.

DIFC and ADGM: The Newcomers

The UAE’s DIFC and ADGM have emerged as popular jurisdictions for foundation setups in recent years, offering modern and flexible regulatory frameworks. Both jurisdictions have tailored their regulations to be user-friendly and attractive to HNWIs and family offices, contributing to their rising popularity.

Types of Foundations: DIFC and ADGM foundations can have both charitable and non-charitable objects.

Regulatory Features: The DIFC's Foundations Law No. 3 of 2018 (amended in 2022 and 2024) aims to address regulatory gaps and enhance user-friendliness while the ADGM's Foundations Regulations 2017 similarly provides a robust framework for the establishment and operation of foundations.

The DIFC and ADGM’s respective foundations regimes have inherited the most salient features of their counterparts in Switzerland and Liechtenstein. The regulations include confidentiality protections and flexible governance provisions.

DIFC and ADGM foundations must be registered with the DIFC/ADGM Registrar, to which certain disclosures must be made upon formation, and annually. Foundations are governed by their charter and by-laws and managed by a council. As by-laws are a set of day-to-day internal governance rules which may be amended more easily than the charter, this structure gives flexibility to the running of the foundation. Both regimes provide a significant level of confidentiality, with the details of the foundation’s assets and beneficiaries not made publicly available.

A key difference between the two jurisdictions is the DIFC's more detailed and expansive “firewall provisions”, which limit the impact of potential actions taken by foreign authorities or courts with respect to a DIFC foundation and its officers. The DIFC’s regime therefore provides more certainty in terms of the application of DIFC law in sensitive matters such as inheritance and personal relationships.

DIFC foundations may own real estate in certain areas in Dubai (as per a Memorandum of Understanding with the Dubai Land Department) while ADGM foundations may own real estate in designated areas in Abu Dhabi. This provides flexibility and opportunities for asset management within the UAE.

The Growth of Foundations in the GCC

As part of a rising demand for estate and succession planning solutions, foundations have increasingly become the vehicle of choice in the GCC region.

There is a growing need for wealth management and succession planning structures in the GCC with some estimated $1 trillion of assets set to be passed to the next generation by 2030. HNWIs and family offices are particularly attracted to the robust and user-friendly regulatory frameworks provided by jurisdictions such as the DIFC and ADGM.

Foundations are particularly attractive as the structure is similar to that of companies, making them straightforward to operate for those familiar with corporate entities. This similarity includes the establishment and registration processes, the capacity and legal status of foundations, and the administration and governance structures.

The flexibility to incorporate or disapply Sharia principles in the management and planning of foundations is a significant factor in their popularity. This allows local individuals and families to choose whether to adhere to Sharia principles or opt for non-Sharia compliant succession planning, depending on their preferences and needs. The robust firewall provisions, especially in the DIFC, provide certainty that the foundation’s constitution will be upheld and will not become subject to foreign law.

As discussed, the capacity of DIFC and ADGM foundations to own property within their jurisdictions provides further flexibility and opportunities for asset management within the UAE.

Reforms to Foundations Regimes in Other Jurisdictions

The growing demand for estate and succession planning solutions has been keenly watched by governments, not least in the GCC. This has presented an opportunity for jurisdictions to update their regulations and in doing so capitalise on the demand for foundations. The Qatar Financial Centre and Ras Al Khaimah International Cooperation Centre have both introduced foundations regulations and are working towards designing robust and flexible regimes that facilitate wealth management, asset protection and succession planning. To compete with established popular centres such as Switzerland, Liechtenstein, the DIFC and ADGM, we are likely to see other jurisdictions considering reforms in the following key areas:

• Allowing Charitable Objects alongside Private Objects: Permitting foundations to have charitable objects opens the regime to catering for philanthropic needs and obligations, such as zakat for Muslim families.
• Flexibility in Governance: Providing for a structure of internal governance by-laws alongside a constitutional charter, as seen in the DIFC, allows more flexibility while enhancing legal certainty and privacy.
• Strengthening “Firewall” Asset Protection: Enhancing provisions limiting the impact of potential actions taken by foreign authorities or courts, similar to those in the DIFC, provides greater assurance against the impact of foreign judgments and proceedings.
• Facilitating Continuation and Conversion: Allowing for the continuation and recognition of foreign foundations, as well as the conversion of companies into foundations, could further attract entities looking to redomicile or restructure.
• Real Estate Ownership: Permitting foundations to own real estate in designated areas enhances their appeal as asset-holding vehicles .