Understanding Taxation for Family Foundations in the UAE

Family foundations: legal vehicles often used by high-net-worth families to preserve, manage, and pass on wealth, have gained prominence in the UAE’s evolving corporate tax landscape. While not a traditional entity type under UAE corporate law, a Family Foundation is recognized for tax transparency under Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law) when specific conditions are met.

This post unpacks the key concepts, eligibility criteria, tax implications, and compliance requirements for Family Foundations, drawing on the Federal Tax Authority’s detailed guide CTGFF1 (May 2025).

1. What Is a Family Foundation?

A Family Foundation is not a unique corporate form but rather a tax concept defined in Article 17 of the Corporate Tax Law. It encompasses any foundation, trust, or similar entity—whether incorporated or contractual—that:

1. Manages family assets 

   (foundations under DIFC, ADGM, RAK ICC; mainland trusts under Federal Decree-Law 31/2023; or comparable foreign vehicles).

2. Meets five statutory conditions 

   (see Section 3).

   
   

By satisfying these conditions, a foundation or trust may apply to be treated as an Unincorporated Partnership—a fiscally transparent vehicle—thereby passing income and gains directly to beneficiaries for tax purposes.

2. Key Conditions to Qualify

Under Article 17(1), a foundation or trust must satisfy all of the following to attain Family Foundation status:

1. Beneficiary Condition:

   Must be established for identified or identifiable natural persons (e.g., children, grandchildren) and/or public benefit entities.

2. Principal Activity Condition:

   Its main activity is to receive, hold, invest, or manage assets and funds (e.g., stocks, bonds, real estate) to generate returns for beneficiaries.

3. No Business Activity:

   It must not conduct what would be a “Business Activity” if carried out by a natural person (e.g., operating a motel requires a license and thus disqualifies). Passive investment and real estate leasing without license qualify, but active trading or commercial services do not.

4. No Tax Avoidance Purpose:

   The entity’s principal aim must not be to avoid UAE corporate tax. Applying for tax transparency to streamline compliance is acceptable under the law.

5. Distribution Condition (if public benefit entities are beneficiaries):

   If beneficiaries include non-exempt charities, any taxable income must be paid out to them within six months of the end of the tax period.

   
   

Together, these criteria ensure Family Foundations serve legitimate wealth-management or philanthropic goals, not commercial enterprises.

3. Tax Implications & Benefits

Fiscal Transparency

Once approved by the FTA, a Family Foundation is treated as an Unincorporated Partnership:

• No standalone tax liability: The foundation itself does not pay corporate tax.

• Pass-through treatment: Income, gains, assets, and expenses are allocated to beneficiaries in proportion to their share.

Beneficiary Outcomes

• Natural persons: Their share of income is classified as Personal Investment or Real Estate Investment income, both excluded from corporate tax for individuals.

• Qualifying Public Benefit Entities: Remain tax-exempt under Article 9 of the Corporate Tax Law.

• Other entities: Non-exempt institutional beneficiaries include their share in taxable profits and may claim participation or foreign tax credits where applicable.

This structure can dramatically simplify group holdings and avoid double taxation on intra-family transfers.

4. Application & Compliance Roadmap

Registration & Application

1. Tax Registration:

   Any foundation or trust (even an unincorporated partnership by default) must hold a UAE tax registration number before applying for transparency.

2. FTA Application:

   Submit details—founding documents, beneficiary lists, and confirmation of each of the five conditions—before the tax period end. Approved status can apply retroactively to any period ending on or before December 31, 2025.

   
   

Ongoing Obligations

• Annual Confirmation:

  File a confirmation with the FTA within nine months of each tax-period end, affirming all conditions remain met.

• Multi-Tier Structures:

  Juridical subsidiaries wholly owned (directly or via transparent entities) may also apply for pass-through status if they satisfy the same criteria continuously throughout their financial year.

• Monitoring & Remediation:

  Any failure to meet conditions (e.g., conducting a disqualifying business activity or missing a required distribution) automatically revokes transparency from the start of that tax period, reinstating the foundation’s standalone tax liability.

5. Practical Considerations

• Data & Documentation:

  Maintain clear records of beneficiary identities, investment mandates, board minutes, and distribution receipts to support both the initial application and annual confirmations.

• Systems & Controls:

  Integrate ESG or philanthropic distributions, asset-management fees, and trustee payments into your ERP to reconcile pass-through allocations accurately.

• Professional Advice:

  Engage specialised tax counsel to navigate complex cross-border nexus issues (e.g., holding UAE real estate via foreign foundations) and optimize treaty relief or foreign tax credits.

Conclusion

The UAE’s Family Foundation regime provides a robust framework for families to centralize asset management, secure tax transparency, and maintain compliance under the federal corporate tax law. By understanding and adhering to the five foundational conditions—and meeting ongoing confirmation and multi-tier requirements—wealth holders can unlock seamless pass-through taxation, simplified reporting, and strategic flexibility.

For detailed guidance, refer to the FTA’s full Corporate Tax Guide CTGFF1 (May 2025).