Structuring Family Wealth Tax-Efficiently Through UAE Family Foundations
Today, the world is more regulated due to the global tax environment and ultra-high-net-worth individuals and family offices seek the most efficient ways to protect and succession planning of their wealth. The UAE has a tax-efficient, robust, and flexible vehicle to meet this purpose through Family Foundations.
UAE Federal Tax Authority has published the detailed guide for Family Foundations' Corporate Tax position under the Law and Corporate Tax Guide (CTGFF1 - May 2025), has outlines the detailed explanations and examples to meet the status of an unincorporated partnership and the benefits of getting the tax transparency for the foundation. In this blog, we are going to outline how UAE Family Foundations can benefit from preserving the wealth, succession planning, and Corporate Tax efficiency.
What is a UAE Family Foundation?
Article 17 of the Corporate Tax Law has explained which arrangements can be considered as Family Foundations and what are conditions to be satisfied by a Family Foundation must satisfy to be considered as a transparent vehicle. Article 1 of the Corporate Tax Law defines what a Family Foundation is. A Family Foundation is any entity which can be the below and satisfy the conditions prescribed in Article 17 of the Corporate Tax Law;
- Foundations
- Trusts
- Similar entities (used for family wealth management)
This includes foreign family foundations as well.
Conditions to be satisfied by a family foundation to be considered as a transparent vehicle
1. Family Foundation must have identified or identifiable beneficiaries who are natural persons, meaning individuals or a Qualifying Public Benefit Entity. Identifiable natural persons include the unborn children as well.
2. The principal activity of the family foundation is to hold assets, manage and receive benefits from the assets.
3. Family Foundation must not conduct any business activity defined by Law.
4. The purpose of establishing the foundation must not be the avoidance of Corporate Tax.
5. If the beneficiary is a Qualifying Public Benefit Entity must be either exempt or distributed within 6 months.
If the above conditions are met, Family Foundation submit an application to treat the entity as an unincorporated partnership.
Key points for submitting the tax transparency application
A) Compliance
- The first step of compliance is Corporate Tax registration. By default family foundation is considered a corporation, and once the license or incorporation certificate is issued, within 3 months must register and obtain a Tax Registration Number (TRN) for Corporate Tax purposes.
- The application should be submitted to the Federal Tax Authority within 9 months from the end of the tax year.
- The application is required to be submitted every year, not just once. The deadline remains the same, which is 9 months from the end of the tax year. Ex: If the tax period of a family foundation is January to December, the first tax year ended on 31 December 2024, the application to be treated as a transparent vehicle must be submitted before 30 September 2025.
- While submitting the application, the Family Foundation must disclose the list of beneficiaries to the authority.
Once the application is approved by FTA, Family Foundation is considered an Unincorporated Partnership for Corporate Tax purposes.
B) What's next once the application is approved?
An unincorporated partnership is not taxed in its own right. Instead, the partners in the unincorporated partnership are taxed. Means, the corporate tax liability is moved from Family Foundation to the beneficiaries based on the distribution of benefits received by each beneficiary.
C) Are the beneficiaries in the foundation taxed?
As per Cabinet Decision No.49 of 2023, natural persons are coming under the scope of UAE Corporate Tax only if the income from business or business activities in the UAE exceeds AED 1 million in a calendar year. While calculating AED 1, 00,000, incomes below are not considered;
- Wages
- Personal Investment Income
- Real Estate Investment Income
If the income from the family foundation received by the beneficiaries can be enjoyed tax-free income because the family foundation can get the pass-through tax only if the business activity is not conducted by the family foundation itself.
Multi-Tier Structures
Are you looking for multiple layers for your assets to have more protection and asset ring fencing? Yes, UAE Corporate Tax allows the tax transparency options to your underlying holding companies also. Below are the conditions;
1. Subsidiary companies are fully owned by a family foundation directly or indirectly.
Let us understand this with a few examples.
a) A Family foundation owns 80% of the shares of the subsidiary holding company, which owns real estate assets. In this case, the Holding company cannot apply for tax transparency since the holding is not done through full ownership (100%) of a family foundation.
b) 2 Family foundations own 50% each in a holding company. In this case also the fully owned condition is not satisfied.
c) A Family Foundation owns 100% shares in a holding company. The holding company owns 100% shares in another holding company. Here, the structure is clear. The second company is 100% owned by a family foundation indirectly.
2. Subsidiary companies are satisfying the conditions prescribed in Article 17 of the Corporate Tax Law. Means, in the chain of subsidiaries, no one is beating the conditions of being treated as an unincorporated partnership.
3. The application to be submitted to FTA to be treated as a transparent vehicle either by each entity in the chain separately or the parent entity, which is Family Foundation, on behalf of the subsidiaries and for themselves.
What happens if the Family Foundation fails to satisfy the conditions to be treated as an unincorporated partnership?
From the start of the year in which the conditions are violated till the end of that tax period, the family foundation cannot be eligible to be treated as an unincorporated partnership. FTA emphasises that throughout the year, the conditions required are to be satisfied.
Examples of Tax-Efficient Structures
Example 1: UAE Real Estate Holding
A DIFC foundation owns two SPVs that hold rental properties. Since rental income qualifies as Real Estate Investment income, and the foundation is fiscally transparent, no corporate tax applies at any level provided the right applications are submitted and approved.
Example 2: Foreign Family Foundation
A GCC family creates a foreign foundation that owns UAE real estate. If the foundation applies and is approved for transparency, income flows to the family members tax-free as real estate income, even if the foundation has a UAE nexus.
Applying for transparency is always recommended?
Not always. Here comes the consideration of international taxation. Once the application is submitted to be treated the family foundation and FTA approve, the tax liabilities are shifted from the foundation to the beneficiaries. Now the question is in which country, the beneficiaries are liable to report the personal income tax and what tax structure the country follows. If your beneficiaries are located in a high-tax jurisdiction and are taxed on their worldwide income, the shift of tax liability from the foundation to the beneficiary may not be a tax-optimised idea.
Who Should Consider a UAE Family Foundation?
- HNW families with diverse local and international assets
- Family-run business owners looking for smooth succession planning
- Investors in UAE real estate
- Philanthropic families who support charities or PBOs
- Non-resident GCC families with UAE-based properties
- Compliance Requirements
- Registration with the FTA for Corporate Tax
- Application to be treated as an Unincorporated Partnership
- Annual Confirmation Filing with the FTA
- Distribution tracking if public benefit entities are involved
Who are we?
Flyingcolour Group of companies are established in the UAE with a history of success and client satisfaction for over 21 years. We not only do the setup of your family foundation. Our tax experts step in to the advisory before setting up the family foundation to explain to you the various aspects of UAE taxation and compliance to be taken care of. Flying Colour Tax Consultant is a UAE FTA-approved Tax Agency we handle complex tax matters of enterprises in the UAE, international taxation aspects for High-Net-Worth-Individuals.
To learn more about Structuring Family Wealth Tax-Efficiently Through UAE Family Foundations, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.