On this week’s episode of Taking Care of Business, COO; Carl Allsopp is joined by the Managing Partner of M/HQ; Mr Yann Mrazek to discuss all things Foundations, the importance of setting up your businesses correctly to ensure continuity, legacy building, correct taxation structure and more.
Let’s discuss some key takeaways from the podcast!
Carl shares that he believes Foundations are crucial structures for businesses to consider in terms of their continuity and future succession plans. His experience in Dubai in 2006 shares that Dubai had no systems in place for real estate, it was a city where anyone to everyone was selling real estate, regardless of their training or backgrounds. He also shares that setting business structures under a Foundation helps maintain a transparent property purchase process, not just that it also ensures there are regulations and structures in place, which Dubai has heavily implemented over the last three years.
But you might be wondering what Foundations are, so let’s get right into it!
What’s a Foundation?
A Foundation is an independent legal entity that holds assets separately from the founder's personal wealth. It shares the similarities of functions and mechanisms with both company and trust, but isn’t strictly considered a hybrid of the two.
What does M/HQ specialise in?
M/HQ is a multi-service platform that structures wealth. Their key goal is to appeal to a spectrum of clients – from individual entrepreneurs and local SMEs to wealthy international families, to established blue-chip companies and multinationals.
Whenever their clients want to structure the foundation of high value assets, M/HQ is there to offer innovative solutions. M/HQ has been in the market since 2009, and employs over 150 employees.
They also provide other ancillary services in key industries such as corporate tax advice, legacy planning and accounting services.
Why is it essential for businesses to have a Foundation, and how does it affect business continuity?
Yann explains, picture a balloon being held by an individual full of their cash and assets. In their demise, the balloon drops and it will all freeze, until a judge legally can handle the process of their Will but if that individual had a Foundation structure, their assets would be in the balloon and continue floating around for the better good of the businesses/assets.
The assets won’t freeze and action will be taken without disrupting the flow of cash for the individual’s family or business.
This is essential for business continuity, as even after the individual’s demise, their corporate assets, or business is not directly affected. This is known as Legacy Planning.
What is Legacy Planning and why is it crucial?
Yann shares that; Legacy Planning is the financial and governance plan that helps you to secure your wealth and life achievements for the generations to come after you. Legacy planning is focused on providing and implementing a roadmap in line with the individual’s vision according to which a legacy is established, assets will be managed and protected, as well as passed onto future generations.
He further explains that; Legacy Planning is essential for individuals who have businesses or other assets that require professional management or preservation. In order to leave a financial legacy for the next generation in a secure manner, it is important to first ensure financial security to your legacy.
Maintaining such financial security on a long-term basis can be a real challenge – especially for globalised businesses as the risks are higher and sometimes can be hard to predict.
With a proper legacy planning strategy, the following risks can be addressed and sorted. Political risk being the first followed by geographical risk, then exchange control, followed by tax (domestic/foreign investment) and governance. But it expands into creditor attacks, lack of eligibility of the next generation, matrimonial attacks, family disputes; and avoiding the risk of freezing of assets.
We can understand how overwhelming it could sound, but protection of assets is important for those who would like to secure the future of their businesses.
What is the process of moving your real estate holdings under a Foundation?
Carl asks Yann to break down the process for those who have invested in properties. Yann explains that if one company is looking to transfer real estate into another company, they’d have to generate a resolution which would give power to someone to sign (the other company).
Similarly for individuals, if you are holding a property or a set of properties, you would generate a resolution between yourself and the Foundation for protecting the assets. Yann explains that its a fairly simple process that just requires a property moving from one person to another for the management of assets in a secure manner.
What is Dubai Land Department’s gifting rate and how does it impact your Foundation?
In order to smoothly transfer assets, an individual can do so through Dubai Land Department’s gifting transfer to only their beneficiaries or direct family members. The standard transfer fee of 4% that must be paid to the Dubai Land Department at the time of the property transfer does not apply to a transfer of property that is considered a gift transfer. However, a small transfer charge of 0.125 per cent must be paid at the transfer time.
Did you know that there are over 800 Foundations currently in Dubai?
Interested to know more on Foundations and corporate tax? Tune into Taking Care of Business, every Friday!