DIFC

A LEADING FREEZONE FOR
FINANCIAL BUSINESSMEN

DIFC Freezone

DIFC Company Formation

DIFC (Dubai International Financial Centre) is one of Dubai Free zones; the financial hubs for the Middle East, Africa and South Asia. It is hosting an independent regulator, a registry of companies (ROC), a will and probate registry (WPR) **, a common law judicial system and a global financial exchange. Currently, more than 1750 active registered companies operate from the Centre, with a combined workforce of 21,628 people.

Within DIFC, subsidiaries and incorporated entities enjoy 100% Foreign Ownership as well as a world-class regulatory environment that allows for a range of options for structuring legal entities.DIFC-based companies face no restrictions or constraints on capital or profit flows, and benefit from no currency exchange controls in the US-dollar denominated jurisdiction.

DIFC provides a 40-year guarantee of zero taxes on corporate income and profits, enhanced by the UAE’s wide network of double taxation avoidance treaties with regulators and central banks.

DIFC’s legal system and courts follow a Common Law framework administered by an independent and highly regarded regulator and adjudicated by an equally respected court system.An independent risk-based regulator, the Dubai Financial Services Authority (DFSA) grants licenses and regulates the activities of financial services conducted through DIFC.

DIFC hosts a diverse client base ranging from regulated firms, authorized market institutions, designated non-financial businesses to non-regulated businesses and exempt companies.

Regulated firms carry out financial services and comprise of banks, capital markets, wealth and asset managers, insurance and re-insurance firms, Islamic finance and business processing operations. Market institutions are authorized to operate an exchange and/or clearing house in or from DIFC.

Non-regulated firms offer professional support services and back office administrative operations to the financial community. This includes legal, accounting, notary, audit, insolvency and recruitment firms, corporate governance experts, international tax advisers, consultancy and more.

Range of structures which could be incorporated in DIFC

  • Company limited by shares (LTD) with one or more individuals or corporate entities as shareholders
  • Limited Liability Company (LLC)with one or more individuals or corporate entities as shareholders
  • Limited Liability Partnership (LLP)
  • Limited Partnership (LP)
  • General Partnership (GP)
  • Investment Company ( Investment Fund)
  • Protected Cell Company (PCC)
  • Special Purpose Company (SPC- exempt company)*
  • Branches (Foreign Company, Foreign limited liability partnership RLLP, limited partnership RLP, Foreign general partnership RP)
  • Migration of Foreign Company (continued Company)
  • DIFC Trust

Special Purpose Company’s specific features

  • DIFC Companies Law of 2009 (the “Companies Law”)
  • DIFC Special Purpose Company Regulations of 2008 (the “SPC Regulations”)
  • Exempt from a number of key provisions of the Companies Law which apply to an ordinary Company Limited by Shares
  • Subject to certain restrictions and designed to be used for structured finance transactions

Uses of a DIFC SPC

  • Articles of association of the SPC must be restricted to performing only“Exempt Activities” as following ones:
  • Acquisition by way of leasing, title transfer and risk transfer or otherwise,
  • Holding and the disposal of any tangible or intangible asset, including but not limited to receivables and shares in connection with and for the purpose of a transaction.
  • Obtaining of any type of financing either banking or capital markets,
  • Granting of any type of security interest over its assets,
  • Providing of any indemnity or similar support for the benefit of its shareholders or any of its subsidiaries,
  • Entering into any type of hedging arrangements, in connection with and for the purpose of a transaction
  • Acting as trustee or agent for any participant in the transaction.
  • Financing of a transaction or another SPC.
  • Ancillary activities which are related to the activities mentioned above.
  • Any other activity approved in writing by the DIFC Registrar of Companies.

Advantages of a DIFC SPC

  • SPC is subject to common law.
  • No accounting requirements.
  • No AGM Requirement.
  • No foreign ownership restrictions: shares can be 100% held by foreigners.
  • Zero tax: There is no corporate tax within the DIFC and no tax will be levieduntil the year 2054.
  • Limited liability: Shareholders’ liability is limited to the amount of the share capital.
  • No requirement of physical office/ lease: registered office for the SPC is the corporate services provider one.

Restrictions of a SPC

  • to conduct “Financial Services” unless authorized by the DFSA
  • to have more than three shareholders.
  • to operate a trading business
  • to be the general partner of an Investment Partnership

DIFC Will and Probate Registry

**A Will encompassing Dubai assets (bank accounts, jewelry, works of art, cars, investment policies, shares of companies, real estates…) only, located or registered in Dubai, could be registered in the Dubai International Financial Center, a Common Law Jurisdiction based on the UK Estates Act and Probate Rules excluding the Sharia law , Wills and Probate Registry (“WPR”) by Non-Muslim individuals over the age of 21 years UAE resident or not under full testamentary freedom (except some restrictions depending on the testator’s citizenship and/or residency) and covering guardianship matters related to minor children habitually resident in Dubai with the testator.

The execution of the will takes place at the time of registration in the presence of a registry officer and one testator’s witness. The Will shall be electronically stored of the Will as a preventative measure against any possible allegations of forgery and to avoid the risk of tampering, loss, and theft.

DIFC Courts adjudicate any contentious probate matters and issue Grants of Probate (legal instrument allowing the executor- the family member, lawyer, friend…- to handle the disposal of the deceased’s assets and debts), court and guardianship orders.

DIFC Foundation

Alongside Trusts and Family offices, the new Foundation regime introduced in the DIFC (Dubai International Financial Center- a Dubai freezone having its one regulator, global exchange and common law based judicial system), while based on an amalgamation of the world best common-law and civil-law jurisdictions Foundations models (Jersey foundations, Liechtenstein foundations, Dutch Stichting STAK…) enhanced by unique futures, increases the Dubai offering in terms of private wealth structuring, succession planning, creditor/asset protection, and philanthropic planning. This regime allows more controls from the founder over the assets transferred to the Foundation unlike the Trusts and overpasses the limitations of the Trust to own UAE assets.

CHARACTERISTICS OF A FOUNDATION

Purposes of a Foundation:

  • Wealth structuring, succession, governance and tax planning;
  • Asset protection (creditors ,forced heirship rules and adverse takeovers);
  • Special purpose vehicle in commercial transactions (to own certain assets or to perform specific roles or transactions);
  • Charitable.

Corporate Legal

personality, unlike the Trust but similar to a company, (which is represented by its Trustees who hold the assets on behalf of the Trust; while a Foundation holds assets on its own name such as properties, bank accounts, shares of underlying commercial companies) distinct from its founder which permits it to shelter assets separately from the founder’s personal assets, and enter into contracts in its own name.

Orphan corporate legal entity i.e. it has no shareholders or members. Despite being similar to a company it does not issue shares or any other legal title of ownership.

  • Registered with the DIFC Registrar of Companies like companies and unlike Trusts.
  • Statutory Documents governing a Foundation:
    • The Foundation Charter which contains the Foundations’ name and object(s) (could be charitable unlike the AGM Foundation- large scope of objects but cannot carry out any commercial activities, unlike a Trust, which are not incidental or ancillary to its objects: purpose and/or for the benefit of beneficiaries like a trust) and a description of its initial capital (no minimal amount- The Law distinguishes between a founder and a contributor: any party, including the founder, could settle funds into the foundation after its establishment without it being publicly accessible information) and duration (if it is not perpetual). It is available to the public on request to the Registrar.
    • And the Foundation By-laws (if issued) which contains all confidential information, mirroring the Founder’s wishes, not accessible to the public.
  •  Managed by a Foundation Council (with at least two members -individuals or body corporates- who administer its property and carry out its objects like a board of directors under a duty of care apply in fulfilling its fiduciary duties towards the foundation.) and could be supervised by a guardian (who is not mandatory unless the foundation has a charitable object or a specified non-charitable object under the Law. Any legal or natural person could be appointed as guardian except members of the Council to avoid collision. The guardian’s duty is to supervise the foundation council. He may be granted by the By-Laws reserved powers to approve or disapprove the foundation council’s acts like a protector of a trust could do).
  • Having a Registered office in the DIFC but could be administered elsewhere.
  •  Established by one or more founder(s) – individual(s) or corporate entity (ies). After its creation, the founder has no more rights towards the foundation or its property but has the option to retain (but not to bequest after his death) significant powers in the by-laws (more flexibility than a Trust and easily accepted in civil law jurisdictions in terms of ownership): reserve the right to change the charter and the by-laws or terminate the foundation, unlike the irrevocable full discretionary trust. The founder may elect, in the by-laws, individuals-including himself- or groups of “qualified recipients” who will have no rights to, or interest in, the foundation by way of the Law except a right to payment of amounts based on the by-laws, a contract with the foundation or a depository receipt, which can be enforced before a court if not fulfilled. However, a qualified recipient is entitled to request basic information (the financial statements and property of the foundation, and the way the foundation and its properties are managed and administered) regarding the foundation.
  • Could appoint a registered agent, who must be a ‘qualified person’ i.e. licensed by the DIFC Authority to carry out such activity. The appointment of a registered agent will increase the level of confidentiality by allowing the Foundation to not file with its Registrar its audited accounts.

Unique Features:

  • The Law contains robust asset-protection and firewall provisions to protect from forced-heirship or creditor claims based on foreign law and judgments, administrative orders and arbitral awards – as long as the initial disposition of the assets into the Foundation was properly done under the DIFC’s laws.
  • Foundations could be amalgamated or divided, migrate to DIFC or from DIFC and a company could be mutated into a foundation.
  • Arbitration could be used as an alternative dispute resolution.
  • Mistakes or inadequate deliberations concerning the disposition of its assets could be rectified by the DIFC court.
  • Foundation may issue securities, including depository receipts with respect to assets of the foundation, allowing the economic benefits to be transferred to a recipient while retaining the ownership of the asset. This feature could be found helpful to structure family businesses, employee benefit programs.

Comparative Table

DIFCADGMLIECHTENSTEINPANAMAJERSEYGUERNSEY
LawThe Foundations Law 2017The Foundations Regulations
2017
The Persons and Companies Act,
1926 (as amended, 2008), Art.552 [1-43]
The Private Interest Foundation
Law 1995
The Foundations (Jersey) Law 2009The Foundations (Guernsey)
Law 2012
Legal SystemCommon Law principles based legal system & Courts – own Civil & Commercial LawsCommon Law legal system & Courts -Laws of England & Wales based Civil and Commercial LawsCivil lawCivil lawCombination of
French civil law & English
common law
English common
law & Equity principles
Benefits• Top Tier international financial center
• No requirement to file or audit account unless requested by the Registrar
•Migration of foreign foundations allowed
• Strategic location in the Middle East & emerging markets
• No corporate and inheritance tax
• No tax filing
• UAE Tax treaty
Network
• Depository certificates could be issued by Foundation
• Possibility to morph company into foundation
• Private arbitration of disputes
• Top Tier international financial center
• No requirement to file or audit account unless requested by the Registrar
•Migration of foreign foundations allowed
• Strategic location in the Middle East & emerging markets
• No corporate and inheritance tax
• No tax filing
• UAE Tax treaty
Network
• Low set-up and running costs
• Onshore International financial center
• Fast processing
• Location in Europe
• EU compatible Investment
vehicle
• International financial center
• Fast processing
• Location in Latin America
• No corporate tax -Exemption from local taxes for foreign source income
•International financial center
• Fast processing
• Location in Europe
• No corporate tax
• International financial center
• Fast processing
• Location in Europe
• No corporate tax
Initial capitalAny property as initial endowment

 

USD100Assets of a minimum
value of CHF 30,000
Assets of a minimum
value of USD 10,000
Any property as initial endowmentAny property as initial endowment
Corporate Income Taxnone

 

none12.5% on
net income (
minimum tax of CHF 1,200)
noneNone- registered as an ISE (international services entity) for GST
(Goods Service Tax)
none

DIFCADGMLIECHTENSTEINPANAMAJERSEYGUERNSEY
StakeholdersFounder:
1 (or more) natural
or corporate person•Council:
At least 2 natural
or corporate person (Founder could be Councilor)• Guardian:
Mandatory if charitable or specific purpose (natural
or corporate person)• Beneficiaries:
natural
or corporate persons (including Founder)• Registered Agent is
Optional
Founder:
1 (or more) natural
or corporate person•Council:
At least 2 natural
or corporate person (Founder could be Councilor)• Guardian:
Mandatory if no
surviving founder (natural
or corporate person)• Beneficiaries:
Person or class of persons (including Founder)• Registered Agent is
Optional
Founder:
1 (or more) natural
or corporate person• Council:
At least 1 natural
or corporate person (Founder could be Councilor) with at least 1 qualified person (Local qualified fiduciary).• Guardian:
optional (natural
or corporate person)• Beneficiaries:
natural or
corporate persons / or class of beneficiaries (including Founder)• Auditor: mandatory if the
foundation carries out commercial
activities
Founder:
1 (or more) natural
or corporate person•Council:
At least 3 natural
or 1 corporate person (Founder could be Councilor)• Protector:
Optional• Beneficiaries:
natural
or corporate persons (including Founder)Resident Agent:
Mandatory
Founder:
1 (or more) natural
or corporate person•Council:
At least 1 natural
or corporate person (Founder could be Councilor) with at least 1 qualified person (Jersey qualified fiduciary).• Guardian:
Mandatory• Beneficiaries:
Person or class of persons (including Founder)
Founder:
1 (or more) natural
or corporate person•Council:
At least 2 natural
or corporate person unless the Constitution permits it
(Founder could be Councilor)• Guardian:
Mandatory if only a purpose without beneficiaries
or there are disenfranchised
beneficiaries
(natural
or corporate person)• Beneficiaries:
natural
or corporate persons (including Founder)• Registered Agent is Mandatory if
councilor or
guardian is Guernsey licensed fiduciary
Local representation• registered office (could be at registered agent’s address)

 

• registered office (could be at registered agent’s address)• At least one member of the
board must be
resident in
EU and
a qualified professional
• The Resident Agent must have a local
address
• One member of the Council must be a Jersey Qualified Person.resident
Guernsey licensed Fiduciary
agent is mandatory if is not one
councilor or
guardian
Public information•foundation charter
• founder,
Councilor &
registered agent ‘names, addresses & nationalities
• The foundation charter except (
Details of councilors-beneficiaries, guardian,
beneficial owner of
founder
if it is a
legal
person)
•None if Foundation is not registered• initial capital
• details of
Councilors, founder
& resident
agent• appointing method of beneficiaries
•purposes/ objects and duration
• clauses deemed
expedient by the founder
• modification process of
charter
•Object, purposes
and initial endowment
•Part A only:
Councilors and Guardian’s details
Migration• Allowed• Allowed• Allowed• AllowedJersey companies
& recognized entities are allowed to
morph as Jersey foundations.Jersey foundations
are allowed to continue as recognized
entities.
• Allowed
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