Introduction to Taxation of Family Foundations in Dubai
The taxation of family foundations in Dubai has become a key focus area following the introduction of the UAE Corporate Tax regime. The Federal Tax Authority (FTA) has released a comprehensive guide titled “Taxation of Family Foundations: UAE Corporate Tax Guide (CTGFF1) – May 2025,” providing clarity on the treatment of family foundations under the new tax framework.
Family foundations, often used for wealth preservation and succession planning, must now navigate corporate tax regulations while ensuring compliance. The FTA’s guide offers practical insights for families, advisors, and professionals, covering key aspects such as tax exemptions, reporting obligations, and structuring considerations.
This introduction explores the essential tax principles affecting family foundations in Dubai, helping stakeholders make informed decisions while optimising their tax positions in line with UAE laws.
Overview of Family Foundations in Dubai
A family foundation is a legal structure established to safeguard, administer, and distribute assets for the benefit of family members or designated recipients. In the UAE, these foundations can be structured in various forms, including:
- Foundations (governed by DIFC, ADGM, or RAK ICC regulations)
- Trusts (whether incorporated or unincorporated)
- Other similar wealth-preservation entities focused on succession planning
Under UAE corporate tax law, family foundations are recognized as distinct from regular business entities, provided they comply with specific regulatory requirements. This distinction allows them to serve their primary purpose of long-term wealth protection and inheritance management.
Understanding the Role of Taxation in Family Foundations: Taxation of Family Foundations
Family foundations in the UAE have traditionally benefited from significant tax neutrality. However, with the implementation of corporate tax, these entities may now be taxed similarly to regular companies—unless they qualify for an exemption or are treated as fiscally transparent. To address this, the FTA’s manual provides a clear framework aimed at protecting legitimate family foundations from unnecessary taxation while preventing their misuse for tax avoidance purposes.
Foundational Requirements to Qualify as a Family Foundation
Beneficiary Condition
The family foundation was established for the benefit of identified or identifiable natural persons, or for the benefit of a public benefit entity, or both.
Principal Activity Condition
The foundation’s main function should be the holding and management of assets, rather than engaging in commercial business operations.
No Business Activity Condition
The foundation must not conduct business activities, except for those that are incidental to asset management, such as collecting rent or managing investments.
No Tax Avoidance Condition
The structure must not be established primarily to avoid or evade taxes.
Distribution Condition (if applicable)
The family foundation meets one of the distribution conditions where any of the beneficiaries are public benefit entities.
Annual Confirmation
The foundation is required to confirm annually that it continues to comply with all of the above conditions.
Taxation Framework for Family Foundations Under Corporate Law
- Default Tax Status
Family foundations are treated as separate taxable entities and must pay corporate tax unless exempted or granted special status.
2. Fiscally Transparent Option
Foundations meeting certain criteria can apply to be treated like an unincorporated partnership:
- No tax on the foundation itself.
- Income is taxed in the hands of the beneficiaries based on their tax status.
- Application Process
The foundation must apply to the FTA with the necessary documents. Approval depends on fulfilling all conditions. - Beneficiary Tax Rules
- Individuals: Not taxed unless income comes from business activities.
- Public Benefit Entities: Income disbursed to qualifying public advantage entities is exempt from company tax.
- Payments for Services: If a beneficiary gives offerings to the inspiration and gets payment, such bills can be challenged for tax as enterprise profits.
Family foundations with multi-layered ownership
In cases where a family foundation owns multiple layers of entities, the corporate tax implications are determined by the nature and function of each tier. Thoughtful structuring is key to staying compliant.
Compliance and Tax Administration Procedures
Tax Registration
Family foundations must register for corporate tax, regardless of their status.
Annual Confirmation
They need to confirm yearly that they still qualify for special tax treatment.
Record Keeping
Maintain proper records to prove compliance and assist with tax returns.
Loss of Status
Failing to meet conditions means losing tax benefits and being taxed as a regular company.
Essential Factors for Families and Advisors to Keep in Mind
Review Structure
Verify your family foundation meets all requirements and update its constitution or deed if needed.
Keep Records
Maintain clear documentation of activities, beneficiaries, and distributions to support your tax position.
Get Expert Help
Consult experienced tax and legal advisors, especially for complex or international setups.
Stay Updated
Follow FTA guidance and regulatory changes to remain compliant.
Conclusion
The UAE balances preventing tax abuse with supporting legitimate family wealth management through its tax approach. By working with corporate tax experts and adhering to FTA guidelines, families can maintain their foundation’s benefits while reducing tax risks.
