Tax-Efficient Wealth Structuring Using UAE Foundations and Holding Companies
Using the strong asset protection system and legal frameworks with zero personal income tax, the UAE continues to attract high-net-worth individuals (HNWIs), international investors and family businesses. The friendly administrative system and tax benefits are key attraction to the investors and HNWIs to UAE. Family Foundations and Holding Companies are the 2 powerful tools for tax-efficient wealth structuring in the UAE.
In this article, let us delve into the details of how the holding structures and family foundation setup in the UAE can protect your assets, manage your inheritance plan and get the maximum benefits of taxation in the UAE Corporate Tax regime. While the UAE follows the Civil Law and Shariah Law in general, the setting up of Family Foundations and holding companies in certain jurisdictions like Dubai International Financial Centre (DIFC) allows the HNIWs and investors to access the Common Law in the UAE.
What Is a UAE Family Foundation?
A Family Foundation in the UAE, particularly in the financial-free zones like DIFC and ADGM, is a legal structure without shareholders. The objective of the family foundation is to fulfil the wishes of the founder and distribute the inheritance to the beneficiaries. The assets are managed through Council Members who are appointed by the Founder as specified in the Charter and Bylaws of the Family Foundation. The assets which the founder owns, once transferred to a foundation, no longer belong to the founder; this offers high levels of asset protection, estate planning and succession planning. Family Foundations in the UAE can own tangible, intangible assets, including shares, real estate, financial instruments, etc.
For deeper insights, read our blog on
Family Foundations and Corporate Tax Benefits
What Is a Holding Company?
A Holding Company is a corporate vehicle set up primarily to hold shares in other companies. These structures do not typically carry out commercial activities but act as umbrella entities for multiple operating subsidiaries, assets, or investments. Holding companies can be registered onshore, in free zones, or in offshore jurisdictions within the UAE.
A Holding Company is a legal entity or a corporate vehicle, and the primary objective is to hold shares in other companies in the UAE or outside the UAE. The holding company stands as a passive income-generating company (like dividends and capital gain from the sale of shares) and is not intended to do active business operations. The holding company can consolidate the investment of HNWIs and investors and enjoy the tax benefits as specified in the UAE Corporate Tax Law.
A holding company can be set up in an onshore or free zone or an offshore jurisdiction. The selection of jurisdiction is very crucial, and a few aspects are as below;
➤ Do you require classification of shares for the holding company to get the investments from the third party while you still hold control of the holding company? If yes, the financial free zones like DIFC and ADGM are recommended.
➤ Are you intending to get 0% Corporate Tax under the Qualifying Income of Holding of Shares and securities for investment purposes? If yes, the holding company require a setup in any UAE Free Zones, including Financial Free Zones.
➤ Are your investments eligible for participation exemptions under UAE Corporate Tax? The jurisdiction in the UAE does not matter for tax optimisation.
➤ Do you want to have the holding entity to access common law in the UAE, DIFC or ADGM is recommended.
Contact Flying Colour Tax Consultant LLC, and we will evaluate your goal and suggest the best setup and structure you require for your wealth.
Benefits of Using UAE Foundations and Holding Companies for Wealth Structuring
1. Corporate Tax Exemptions on Dividends and Capital Gains
Subject to certain conditions, dividends and capital gains received by a UAE Company from its subsidiaries located inside UAE or foreign are exempt from Corporate Tax. Conditions to be satisfied are;
- Minimum ownership threshold of 5% and eligible for 5% profit and 5% liquidation proceedings.
- Holding at least 12 months
- Subject-to-tax test in the source country.
- Bad Asset Test.
Read our detailed article on
Examples for Exemption of Dividend and Capital Gain in the UAE Corporate Tax
2. Asset Protection & Legal Separation
Family Foundations in UAE offers long-term financial security to the founders by doing a legal segregation of the assets from the founder's personal wealth. Once the assets are moved to the foundation, the creditors and legal claims against the founder cannot impact the assets owned by the family foundation.
3. Family Succession Planning
Foundations in the UAE can help in seamless wealth transfer to the next generation or to the desired beneficiaries. Based on the charter and letter of wishes from the founder, the council members are executing the wealth transfer to the beneficiaries without court involvement. This is the game changer for the HNIWs and investors who have operating businesses. By transferring the shares of operating businesses to foundations directly or indirectly (through holding structures), the freezing of operations of the operating businesses in the event of the death of the founder can be bypassed.
4. Estate Planning for Non-Muslim Expats
Non-Muslim residents and non-Emiratis can use DIFC or ADGM Foundations in line with common law principles to override the default inheritance law under Sharia Law in the UAE. This offers greater control over how the assets are distributed as per the wishes or the owner.
5. Free Zone Incentives
When structured within UAE free zones such as ADGM, DIFC, RAK ICC, or JAFZA, foundations and holding companies may benefit from:
- 0% corporate tax under Qualifying Free Zone Person status, subject to conditions.
- 100% foreign ownership
- Confidentiality of ownership using the private registry.
Strategic Use Cases
Family Offices: A Foundation can stand as the consolidating part or ultimate vehicle for a family office, with subsidiary companies, real estate, private equity investment, etc.
International Investment Structuring: Using the extensive Double Taxation Avoidance Agreements (DTAAs) signed by the UAE with 140+ countries, the UAE Holding companies can benefit from either exemption of withholding tax or reduced withholding tax. This is a great advantage for investors who want to keep the UAE holding company as headquarters for their global business.
Asset Consolidation: For tax optimisation and simplified administration, the holding company can be used to consolidate the real estate, intellectual property, shares and other investments.
Bonus Benefits for structuring the holding company in the UAE for tax optimisation
The holding company, which is 100% owned by a UAE Family foundation, directly or indirectly, can also apply for tax transparency, subject to the conditions. This is required to be executed through an application to the Federal Tax Authority. Keep in mind that the Tax Residency Status of the founder and beneficiaries are crucial for this call. The Ministry of Finance UAE has published a Ministerial Decision No. 261 of 2024 on these additional benefits.
Key Considerations
While the structures discussed offer the advantages in taxation and legal side, proper execution of the setup and implementation are critical. Consider:
- Substance and control tests for holding companies to avoid Base Erosion and Profit Shifting (BEPS) concerns.
- Registration and regulatory compliance in the relevant jurisdiction.
- Ongoing administrative costs and reporting obligations.
To learn more about UAE Foundations and Holding Companies for Wealth Structuring, 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.