The ADGM foundation: what it protects, and how

What an ADGM foundation is

An ADGM foundation is created by registering a Charter with the ADGM Registrar under the Foundations Regulations 2017. Once registered it is a legal person in its own right. It has no shareholders and no members. It is run by a Council, under a Charter and By-laws, for the benefit of named beneficiaries, a class of beneficiaries, or a specified purpose.

The cast is short:

• The founder, who signs the Charter and gives the foundation its first assets. The statutory minimum is US$100 (section 13).
• The Council, which manages the assets and makes distributions under the Charter and By-laws.
• The Guardian, who oversees the Council. A Guardian is optional while a founder is alive and compulsory once there is no surviving founder (section 26(1)), and must be fit and proper (section 26(5)).
• The beneficiaries. A founder can be a beneficiary, but can be the sole beneficiary only during their lifetime (section 31(4)).

Most ADGM foundations must also have a licensed Company Service Provider at all times (section 18), unless the Registrar accepts that the foundation has substantial resources, experience and personnel in the UAE and adequate governance of its own.

Benefit one: the assets belong to the foundation

Everything else rests on section 32(1). Assets transferred to a foundation become the foundation's assets, with full legal and beneficial title. They are no longer the property of the founder, and they are not the property of any beneficiary until they are actually distributed. A beneficiary has no rights in specie against the foundation's assets (section 34(1)).

That separation is what lets a family hold shares, property, investment portfolios and digital assets in one vehicle that survives every individual in it.

Benefit two: confidentiality for the people behind it

The Regulations create a category called the Confidential Disclosure. It covers the names and addresses of each Councillor, each beneficiary, any Guardian, and each beneficial owner of a founder that is a company. The Registrar holds this information confidentially. Separately, the foundation's accounting records, accounts and returns are not made public by the Registrar (section 21(13)).

Two points keep this in proportion. First, confidential is not secret: the Registrar can share the information with public authorities where the law allows. Second, it does nothing to tax reporting. A foundation's financial accounts can still be reportable under the Common Reporting Standard, so families should plan for transparency to tax authorities and privacy from the public, not privacy from everyone. Our note on CRS reporting for UAE residents covers how that works.

Benefit three: a firewall against foreign forced heirship

Section 32(2) says a transfer of property to an ADGM foundation is not void, voidable or liable to be set aside by reference to a foreign rule of forced heirship or any other law of a foreign jurisdiction.

The definition in section 32(3) is wide. It covers any rule of any jurisdiction other than ADGM that, to protect someone's right to inherit or share in a person's property on death, tries to restrict what that person can do with their property during their lifetime. It expressly includes judicial and administrative orders that try to enforce such a rule.

For families from civil law or Sharia succession backgrounds, this is the reason the foundation exists. The family decides in the Charter and By-laws who benefits and when, and the fixed shares a home country's succession law would otherwise impose do not reach back into the foundation.

Benefit four: protection from divorce and other relationship claims

Section 32(4) goes further than heirship. A transfer to the foundation, or a distribution made under its Charter or By-laws, cannot be set aside because:

• a foreign statute prohibits foundations or does not recognise them;
• the transfer defeats rights, claims or interests that a foreign statute gives any person by reason of a personal relationship to the founder, or by way of heirship; or
• the transfer contravenes a foreign statute, heirship rule or foreign judicial or administrative order made to give effect to those rights.

The phrase "personal relationship to the Founder" is broad enough to reach a spouse or former spouse claiming under a foreign matrimonial property regime or a foreign divorce settlement. That is the divorce protection families ask about.

Benefit five: foreign judgments do not bite

Section 32(5) closes the loop: a judgment of a foreign court will not be recognised or enforced in ADGM insofar as it is inconsistent with the heirship and relationship firewalls. A foreign court can make its order, but it cannot use ADGM to unwind the foundation.

Benefit six: protection from the founder's and beneficiaries' creditors

Under section 33, a foundation or a transfer to it is not void, voidable or liable to be set aside because of the founder's bankruptcy, the liquidation of the founder's property, or claims by the founder's creditors, whatever a foreign statute says.

There is one deliberate exception. An ADGM court can declare a transfer void, to the extent of a creditor's claim, if it finds that the founder was insolvent at the time of the transfer or intended to defraud that creditor. The burden of proving that rests with the creditor (section 33(3)). A foundation set up while solvent, for genuine succession reasons, is well protected. One set up to dodge a known creditor is not.

Beneficiaries get protection too. Subject to the Charter and By-laws, assets available for distribution to a beneficiary cannot be taken in that beneficiary's bankruptcy or seized in execution (section 34(1)). That is a useful shield for a family member with business risk of their own.

Benefit seven: control that the founder can keep

Section 17 lets the Charter or By-laws reserve powers to the founder or anyone else: to amend the Charter or By-laws, change the objects or dissolve the foundation, direct investments, appoint and remove Councillors and Guardians, add or exclude beneficiaries, and change their entitlements. Any actual disposal of assets still has to go through a resolution of the Council.

This is a benefit with a cost. The more control a founder keeps, the easier it is for a foreign court or tax authority to argue the assets are still really theirs, and the weaker the protection described above becomes in practice. We usually recommend keeping reserved powers narrow and putting real oversight in an independent Guardian.

Benefit eight: a common law home with its own courts

ADGM applies English common law directly, and disputes about an ADGM foundation go to the ADGM Courts, which apply the Regulations as written and are familiar to international banks and advisers. The Regulations also let an overseas foundation migrate into ADGM, where its own law and charter allow it, and stop being registered at home (sections 35 to 39). That makes ADGM a destination for families moving an existing Liechtenstein, Panama or similar foundation closer to where they now live.

Benefit nine: 0% tax through Article 17 pass-through

Article 17 of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022) is what makes an ADGM foundation tax efficient as well as protective.

A qualifying family foundation can apply to the Federal Tax Authority to be treated as an Unincorporated Partnership. Once that is approved, the foundation is tax transparent. It is disregarded for Corporate Tax: it does not pay Corporate Tax on its income, so at the foundation level the rate is 0%. Its income passes through and is treated as the beneficiaries' own, as if they held the assets directly.

That pass-through is where the real saving lies. Where the beneficiaries are individuals and the foundation holds investments, the income is taxed as an individual's personal investment income. The UAE generally does not tax individuals on dividends, capital gains or personal real estate income. So a family foundation holding shares, portfolios and property for the family can sit at 0% at the foundation level and 0% in the family's hands, while the Charter, Council and succession arrangements stay fully in place.

The same treatment can extend down the structure. Entities wholly owned and controlled by a qualifying family foundation can apply for transparency too, so a foundation above holding companies can be transparent all the way down rather than reintroducing 9% at the holding company level.

To qualify, in substance the foundation must:

• exist for the benefit of identifiable individuals or public benefit purposes;
• have as its main activity receiving, holding, investing and managing assets, rather than running a business that would be taxable if the family ran it directly; and
• not be set up or used for the main purpose of avoiding tax.

Three points to plan around. The treatment is not automatic: the foundation applies to the Federal Tax Authority and must keep meeting the conditions year after year. Transparency moves the tax to the beneficiaries, so a beneficiary that is a company, or a family member running a business through the structure, is taxed on its share in its own hands. And for a foundation that runs a trading business, or sits above holding companies that want the participation exemption, staying taxable can be the better answer. We set out the conditions and the trade-offs in our note on the family foundation tax election.

Where the protection stops

The firewalls are strong inside ADGM. They are only as strong elsewhere as the courts of the place where the assets sit allow. Three practical rules follow:

• Hold assets where the firewall will be respected. Shares in an ADGM or other UAE holding company, and bank accounts in the UAE, sit far closer to the protection than a house or an account in the country whose court is hostile.
• Do not keep so much control that the foundation looks like you. A foreign court cannot unwind the foundation through ADGM, but it can make orders against a founder personally, including an order to use a reserved power.
• Set it up while solvent and for a real reason, and document that reason. Section 33 protects honest planning, not a transfer made with a claim already on the horizon.

ADGM or DIFC?

Both centres have mature foundation laws and the differences are narrower than the marketing suggests. The choice usually turns on where the family's other structures, banks and advisers already sit. Our ADGM and DIFC foundation comparison sets them side by side.

How Neo Legal helps

We draft bespoke Charters and By-laws rather than registry templates, design the Council and Guardian arrangements around the protection the family actually needs, work with the Company Service Provider through registration, and handle the Article 17 application and the foundation's ongoing tax compliance. Our family office practice covers the wider structure the foundation sits in.

Frequently asked questions

What is an ADGM foundation?

An ADGM foundation is a legal person registered under the ADGM Foundations Regulations 2017. It owns assets in its own name, has no shareholders, and is run by a Council for named beneficiaries, a class of beneficiaries or a purpose. Families use it for succession planning, asset protection and holding company shares, property and investments in one vehicle.

Are the beneficiaries of an ADGM foundation public?

No. The names and addresses of the Councillors, beneficiaries, any Guardian and the beneficial owners of a corporate founder form the Confidential Disclosure, which the ADGM Registrar holds confidentially, and the foundation's accounts are not made public. The Registrar can still share information with public authorities, and the foundation can be reportable under the Common Reporting Standard.

Does an ADGM foundation protect against forced heirship?

Yes. Section 32 of the Foundations Regulations says a transfer to an ADGM foundation cannot be set aside under a foreign rule of forced heirship or any other foreign law, and section 32(5) says ADGM will not recognise or enforce a foreign judgment that is inconsistent with that protection.

Can an ADGM foundation protect assets in a divorce?

It gives strong protection. Section 32(4) stops a transfer being set aside because it defeats rights a foreign statute gives someone through a personal relationship with the founder, which covers claims by a spouse or former spouse under foreign law. The protection is strongest for assets held in ADGM or the UAE and where the founder has not kept so much control that a court treats the assets as still theirs. Neo Legal designs the governance with that in mind.

Can creditors reach assets in an ADGM foundation?

The founder's bankruptcy or creditors' claims do not set aside a transfer to the foundation, unless an ADGM court finds the founder was insolvent at the time or intended to defraud the creditor, and the creditor has to prove it. Assets due to a beneficiary are also protected from that beneficiary's bankruptcy and from seizure, subject to the Charter and By-laws.

How is an ADGM foundation taxed?

A qualifying family foundation can apply to the Federal Tax Authority under Article 17 of the Corporate Tax Law to be treated as an Unincorporated Partnership. It is then tax transparent: the foundation pays 0% Corporate Tax and its income passes through to the beneficiaries as their own. Individual beneficiaries holding investments are generally not taxed in the UAE on dividends, capital gains or personal real estate income, so the structure can sit at 0% overall. Without the election, a foundation is taxed like a company.

Does an ADGM foundation pay 0% tax?

Yes, if it qualifies as a family foundation under Article 17 of the Corporate Tax Law and the Federal Tax Authority approves its application. It is then disregarded for Corporate Tax, so it pays no tax itself, and its income passes through to the beneficiaries. Neo Legal prepares the Article 17 application and checks the conditions each year.

This article is general information on the law and published guidance at the date shown and is not legal advice. The answer for any structure or business depends on its facts; speak to us before relying on it.