Understanding Family Foundations Under UAE Corporate Tax Law
As part of the UAE’s evolving tax framework, the Federal Tax Authority (FTA) has released detailed guidance on the tax treatment of Family Foundations under the Corporate Tax Law (Federal Decree-Law No. 47 of 2022). This is a significant development for high-net-worth families, estate planners, and legal advisors seeking to manage wealth across generations while remaining compliant with UAE tax laws.
What is a Family Foundations?
A Family Foundation, as defined in the Corporate Tax Law, refers to any foundation, trust, or similar entity established for the benefit of specific individuals or public benefit entities. It is primarily used for asset protection, succession planning, and charitable giving. Importantly, it can be domestically or internationally established, as long as it meets the criteria under Article 17(1) of the Corporate Tax Law.
These entities are often formed under free zones like DIFC, ADGM, or RAK ICC, or in foreign jurisdictions, and can apply to be treated as Unincorporated Partnerships for tax purposes—making them fiscally transparent.
Conditions to Qualify as a Family Foundations
To benefit from fiscal transparency and be excluded from corporate tax as an entity, the foundation must meet all of the following conditions:
- 1. Beneficiary Condition: Must benefit identified or identifiable natural persons or public benefit entities.
- 2. Principal Activity Condition: Must only receive, hold, invest, and manage assets associated with savings or investment.
- 3. No Business Activity: Must not conduct business that would otherwise be taxable if undertaken directly by an individual.
- 4. No Tax Avoidance Purpose: Its formation and activities must not be driven primarily by tax avoidance.
- 5. Distribution Condition: If a public benefit entity is a beneficiary, certain income must either be exempt or distributed within six months after the tax year.
Tax Benefits of Being a Family Foundations
When successfully registered as a fiscally transparent Unincorporated Partnership, the foundation itself is not subject to corporate tax. Instead, its income and expenses are attributed to its beneficiaries based on their interest.
For natural person beneficiaries, this typically results in no corporate tax liability, provided the income qualifies as personal investment or real estate investment income. In other words, it allows families to consolidate and protect wealth without incurring unnecessary corporate taxation, assuming they operate within the legal framework.
Multi-Tiered Structures and Foreign Foundations
The guide also clarifies that multi-tier structures—where a Family Foundation wholly owns other juridical entities—can also apply for fiscal transparency, provided each entity in the chain meets the requirements under the law.
Even foreign Family Foundations with a UAE nexus (e.g., owning real estate in the UAE) can register and apply for tax-transparent treatment if compliant with Article 17(1). This ensures alignment with international tax rules while preserving local compliance.
Key Takeaways for Families and Advisors
- A Family Foundation can be an effective tool for managing intergenerational wealth if properly structured under UAE Corporate Tax Law.
- Applying for Unincorporated Partnership status is essential to benefit from tax transparency.
- Tax implications arise at the beneficiary level, with natural persons usually exempt.
- Early compliance with registration and annual confirmation requirements is critical to avoid penalties and maintain transparency status.
Final Thoughts
The new Corporate Tax rules around Family Foundations strike a balance between regulatory oversight and wealth management flexibility. They offer families an opportunity to structure their affairs efficiently—but only if the foundation is structured and maintained in strict accordance with Article 17.
If you’re a family office, legal advisor, or private client practitioner, now is the time to review your structure and ensure you’re making the most of the options available under the UAE’s Corporate Tax regime.
Read the official announcement
