The concept of a discretionary trust is new and has been developed in the UAE, especially with the introduction of trust laws in the DIFC and the ADGM. As this is now becoming familiar, many individuals and organisations are starting to ask: Do charitable trusts need to be registered in UAE?
In this guide, we outline the regulatory framework, the DIFC and ADGM rules, types of trusts, and the practical process of setting up a trust in Dubai or throughout the UAE.
Understanding Trusts In UAE
A trust is a legal relationship where a settlor transfers assets into a trust, which is held by a trustee, who manages the assets for the benefit of the beneficiaries or for a specifically stated purpose.
For many in the UAE, the Anglo-American concept of trust may be a relatively new idea. Still, legal and regulatory advancements have provided a robust framework for trust structures in the UAE to accommodate both private and public purposes over the last decade.
In 2020, the UAE implemented a trust law that provides legal protection for trusts established in accordance with internationally recognised common law principles. Trusts are good source for families, enterprises, and non-profit organisations.
The flexibility of structures lends itself to a variety of objectives, such as estate planning, wealth management, or philanthropic purposes in a UAE context.
Legal Framework For Charitable Trusts
Trusts within the UAE utilise civil law rules and common law principles through free zones such as the DIFC and ADGM. While civil law governs legal entities within the UAE, the introduction of an ordinary law jurisdiction has facilitated the development of sophisticated trust structures. The DIFC trust law establishes clear legal recognition, providing a legal structure that:
- Specifies the powers and duties of trustees to manage the trust in accordance with its purpose.
- Establishes registration requirements for trusts formed in free zone.
- Provides mechanisms to monitor the activities and reporting, especially in terms of non-profit purposes.
- Clearly permits the establishment of both private purpose and public trusts, and remains cognizant of international best practices.
The legal framework ensures transparency and accountability in the public interest, which is crucial for the effective use of philanthropic funds. Failure to comply may not only lead to disputes but could also bring about legal challenges. It is essential for a settlor to be aware of the registration and governance requirements.
Do Charitable Trusts Need To Be Registered?
It is crucial to understand do charitable trusts need to be registered in UAE if you intend to establish a trust in Dubai or anywhere else. The requirement will vary based on the purpose, such as asset protection, and the jurisdiction:
- Trusts in the Free Zones: Trusts created in these free zones are required to be listed to gain legal status. Registration offers protection for trustees, verifies regulatory compliance, and confirms that the trust is created to enact a legitimate purpose.
- Trusts Outside Free Zones: Trusts created outside of the free zones may be under any legal obligation to be listed. However, they should be enlisted to ensure the ability to be enforceable and maintain credibility. Suppose the trust has appropriate documentation, a clear purpose, and demonstrates how it fits into the UAE’s civil law framework.
- Trust as Charitable: Trusts categorised as charitable are treated as public cause or other non-profit organisation purposes. Listing helps ensure transparency and confidence among donors and eliminates the risks of inappropriate fund use and protecting its assets.
The UAE Ministry of Finance provides a legal framework for trustees, reduces the risks of disputes, and ensures the property is managed in compliance with UAE law and the settlor’s intent.
Types Of Charitable Trusts In UAE
Trusts in the UAE can encompass a broad variety of purposes and organisational structures, ranging from broadly defined to more specific charity purposes, such as societal impact. To better understand the different types of trust structures, it’s helpful to know the differences between the goals that is needed to set up a trust:
- Public Trusts: These trusts have a purpose of benefitting the public at large, or a substantial segment of the public. Public philanthropic trusts often have registration requirements, which enable scrutiny of funds to ensure the use and transparency in trust fund.
- Private Purpose Trusts: These trusts support identified objectives, such as education, health, or cultural initiatives. The settlor may identify terms for the use of funds.
- Foundation Type Trusts: A trust where both the trust and a foundation are combined. A punishment when using a hybrid structure is appropriate for large-scale strategic planning and long-term asset management for philanthropic purposes.
Each trust type must only comply with the law or independently established trust law, or independent status as an entity, as applicable under UAE’s 2020 law. These structures have gained popularity among families, corporations, and philanthropists who seek to make a difference by supporting nonprofits, individuals, and communities.
Role Of Trustees And Beneficiaries
In a trust, the trustee accepts a great deal of responsibility to ensure that the trust is conducted according to the trust deed and applicable law. These responsibilities involve:
- Managing Trust Assets: Trustees are responsible for the distribution, investment, and protection of assets to further the philanthropic purpose.
- Maintaining Compliance: Trustees are required to comply with UAE laws and report on the status and governance of the trust, including any asset protection strategies.
- Transparency and Accountability: Trustees are accountable to report activities, the distribution of funds, and any impact achieved, particularly where philanthropic activities occur.
- Protecting Beneficiary Interests: While the beneficiaries of trusts are generally recognized as the public or non-profit purpose, the trustee is responsible for the furtherance of the intended use.
The settlor ultimately defines the purpose and scope of the discretionary trust, which may include charitable purposes. At the same time, the trustee is responsible for conducting the operations and recording the purpose to protect the assets.
When establishing a trust, it is essential to have a qualified trustee with legal and financial expertise, especially when there is a significant amount of donations or if the assets are complicated.
Steps To Establish A Charitable Trust In Dubai
Establishing a trust in Dubai or DIFC necessitates thoughtful consideration and compliance with the required legal processes. A trust is set up by:
- Identifying the Purpose: You will need to clearly state the objectives, such as educational purposes, health-related purposes, engaging in cultural purposes, or other public purposes.
- Preparing The Trust Deed: The deed must set out the structure of the trust, identify the trustee, and define the powers, rights, and responsibilities of the settlor and each of the trustees.
- Appointing Trustees: The trust must establish the required status to hold the trustees accountable for managing assets in accordance with the regulatory scheme.
- Asset Transfer: The settlor can transfer assets into the trust, such as cash, property, investments, or a combination thereof, as included.
- Filing for Registration: Trusts set up in free zone will require to enroll with the relevant authority for it to be compliant with the registration.
- Ongoing Compliance: The trustees must keep proper records, file reports, and keep accurate accounts to ensure that the trust continues to be managed in compliance with its documents and regulatory compliance.
For guidance, see the Financial Services Regulatory Authority (FSRA). If you follow these steps, you will create a trust that is valid and able to meet its philanthropic objectives or purposes.
Benefits Of Registering Charitable Trusts
While registration may not always be necessary for service-based trusts or similar entities established outside of free zones, there are significant advantages to and exposures involved in registration:
- Legal Status:Listed trusts are considered a legal status under UAE law. This statement provides status against differing opinions and the disposition of the assets involved, or perhaps even claims against the trust entity itself.
- Separation of Liability: From a listed trust entity, the trust exists as a legal means to separate the trustees from liability for managing the assets, providing asset protection.
- Transparency:Registration yields tangible benefits in terms of donor accountability and fosters in how it conducts its work.
- Reputation: Listed trusts also look more credible, which is essential when soliciting or receiving public donations in the United Arab Emirates.
Registration generally offers the above advantages, which may make registration sensible that wish to operate effectively and establish credibility for long-term success.
Regulatory Considerations
Charities in trusts should comply with the regulatory requirements of the UAE and its free zones:
- DIFC & ADGM Regulations: Government bodies in these free zones require to abide by strict rules governing registration, reporting, and governance.
- Non-Profit Oversight: Non-profit trusts require that funds be allocated only to public benefits or non-profit interests.
- Transparency Obligations: Trustees may be required to furnish an annual report stating their financial performance and recording donations received and expended for compliance purposes.
Following these will achieve the three key objectives: first, legal compliance; second, strengthening a reputation; and lastly, operational effectiveness.
Conclusion
So, do charitable trusts need to be registered in UAE? The response is contingent upon the jurisdiction where the trust is created and its purpose, particularly within common law jurisdictions. Outside of the free zones, registration may not be necessary but is highly recommended to protect assets, increase transparency, and establish credibility.
In the end, trusts are a sound legal vehicle for funding community programs, preserving wealth for the public good, and enacting appropriate management of donated capital. Registering a trust in the UAE not only abides by the law for settlors and trustees but also instates a vehicle that fosters accountability, transparency, and sustainable impact.
Planning to form or register your charity trust in the UAE? Get in touch with Xpert Advisory now for professional advice on trust formation, DIFC and ADGM registration, and compliance specific to your objectives, especially regarding the UAE’s 2020 trust law.
FAQs
Do Trusts Require Registration in DIFC or ADGM?
Yes, every trust must be registered to gain formal recognition. This protects trustees, ensures compliance, and validates the purpose of the trust.
Can I Establish A Trust Outside Free Zones In the UAE?
Yes, trusts can be created outside free zones. However, a well-prepared trust document is essential to safeguard assets and enforce objectives.
What Are The Benefits Of Registering A Trust?
Registration provides legal recognition and asset holding protection. It also builds transparency, credibility, and compliance with regulatory requirements.
