Do Family Foundations Come Under The Corporate Tax Regime in the UAE?

Corporate Tax Regime in the UAE

The concept of family foundation sits at the heart of the philanthropic landscape in the United Arab Emirates. The primary focus of these businesses is to manage and grow the economy of the family or individual. These foundations provide wealthy families with the ability to contribute to charitable causes.

There are uncountable activities like receiving, holding, managing, and investing funds and assets associated with investment or savings for the advantage of people or families for the future generation that these foundations perform. However, there are several Taxation Rules in UAE that you should follow.

The introduction of the new Corporate Taxation Regime in the UAE has significantly raised numerous confusions. The confusion about Corporate Tax for family foundation regime is among the top confusions of Corporate tax.

If you are confused about whether Family Foundations in UAE come under corporate tax in UAE or not, then you have to invest your precious time in this article. This article will provide you with an answer to the query, “ Do Family Foundations Come Under The Corporate Tax Regime in the UAE.” Furthermore, we will also provide you with UAE Taxation Guidelines.

Are Family Foundations subject to the UAE Corporate Tax?

According to the article 11 of Corporate Tax Law, the UAE foundations are considered to be Taxable Persons and Resident Persons since they are juridical persons incorporated or otherwise established or organized under the applicable legislation of the UAE, such as ADGM, DIFC, and RAKICC regulations. As such, they are essentially subject to CT to the same extent as any other company incorporated in the UAE. However, there are some family foundations in the United Arab Emirates that are exempt from this Corporate Tax for family foundation regime.

According to the prevailing Corporate Taxation Regime in the UAE, family foundations that are solely engaged in charitable and philanthropic activities are granted an exception from the UAE Corporate Tax. However, they are still subject to the corporate taxes.

If Family Foundations in UAE meet the standards specifically laid out under Article 17 of the law, which would recognize the trust or foundation as an unincorporated partnership, whereby all the provisions applicable to such an entity would be appropriate.

This indicates that if the activities of the family foundation are focused on advancing a cause that is noble and contributing positively to society, then it will not have to pay UAE Corporate Tax to a certain extent. Therefore, family foundations need to seek the services of an accredited tax consultant, like Flying Colour Tax, to stay compliant with the Taxation Rules in UAE and develop their status of corporate tax exemption.

The special regime applicable to Family Foundations

 In contrast, what would happen if a natural person held and managed the asset directly? According to the CTG, Family Foundations in UAE that are merely “used to hold and manage personal assets and wealth on behalf and for the benefit of beneficiaries who are natural persons” is going to obtain special treatment for UAE Corporate Tax. Due to this fact, the legislative has established a special regime for family foundations that is mentioned below:

Art. 17 of CTL allows family foundations in an effort to apply to be treated as an “unincorporated partnership.” However, family foundations have to meet the following conditions:

1. The principal or primary purpose of the Family Foundation is not to avoid UAE Corporate Tax.
2. The primary activity of the Family Foundation is to obtain, hold, invest, disburse, or otherwise manage assets or funds associated with savings or investments.
3. The Family Foundation doesn’t engage in any activities that if they had been carried out or their assets owned directly by its founder, settlor, or any of its beneficiaries, would have qualified as a Business or Business Activity.
4. The Family Foundation was developed for the benefit of identified or identifiable natural persons, or for the benefit of a public benefit entity, or both.
5. Additional conditions apply suppose one or more than 1 of the beneficiaries are public benefit entities (Ministerial Decision 127 of 2023 Art. 5)

The CTG clearly stated that “suppose the application is approved, the Family Foundations in UAE is going to be treated as a tax transparent and the beneficiaries would be seen as directly owning or advantaging from the activities and assets of the family foundation.”

There is one thing that you should remember is that transparency only applies for the purposes of the tax while for the legal purpose, the owners of the assets remain the Family Foundations in UAE.

 The analysis for the Corporate Taxation Regime has to be focussed on the tax treatment that applies to the identifiable natural people, assuming that the beneficiaries of the family foundation are only identified.

As per Art. 11 CTL and Art. 2 Cabinet Decision 49 of 2023, If a natural person conducts a business or business activities in the United Arab Emirates and earns a profit from such activities exceeds more than AED 1 million, then natural person is subjected to Corporate Tax for family foundation regime.

The clause 2 of Art. 2 of Cabinet Decision No 49 of 2023 stated that personal investment income is not considered businesses or business activities subjected to Corporate Taxation Regime.

In accordance with the Federal Decree-Law No. 50 of 2022, personal investment is defined as “Investment activities that a natural person operates for their personal account that is neither conducted via a license or requiring a license from a License Authorities in the States, nor considered as a commercial business.”

In a nutshell, as per UAE Taxation Guidelines, if they have not chosen or selected for unincorporated partnership but have not approved their foundations by FTA, foundation, and similar corporation incorporated and established in the United Arab Emirates for charitable purposes and to protect or manage assets of people and families should adhere to the law of the UAE Corporate Tax.

Why should you consult Flying Colour Tax?

Flying Colour Tax comes with a team of experts who are capable of providing valuable information about Corporate Tax. Furthermore, we can also help you in the filing process of any tax in the UAE.

To learn more about difference between corporate tax and income tax in UAE, book a free consultation with one of Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com.

This article was published on 29th January 2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent update or change.