The United Arab Emirates continues to refine its corporate tax landscape with a consistent focus on transparency, global alignment, and providing clarity for businesses and high-net-worth individuals. In a significant development, the Federal Tax Authority (FTA) has launched a new Corporate Tax Guide on the Taxation of Family Foundations (CTGFF1) and issued Cabinet Decision No. 5 of 2025. This landmark move is designed to provide a comprehensive framework for the tax treatment of family wealth management structures, allowing them to benefit from a fiscally transparent status under specific, stringent conditions.
This proactive guidance is a pivotal moment for founders, beneficiaries, and advisors of foundations, trusts, and similar entities. It delineates the path for these structures to be treated as Unincorporated Partnerships for Corporate Tax purposes, thereby shifting the tax obligation from the entity to the ultimate beneficiaries. This strategic provision facilitates long-term wealth planning and succession without the burden of entity-level taxation, reinforcing the UAE’s position as a globally competitive jurisdiction.
This guide and decision crystallize the understanding of the UAE’s approach to family foundations, providing crucial clarity on five key areas.
1. What is a Family Foundation?
For UAE Corporate Tax purposes, a “Family Foundation” is not a specific legal entity but rather a tax concept. It encompasses foundations, trusts, and similar structures – whether established in the UAE or a foreign jurisdiction – that are used to protect and manage the assets and wealth of an individual or family. The principal activity of these entities must be to receive, hold, invest, disburse, or otherwise manage funds and assets associated with savings and investment. Crucially, this definition excludes entities whose main purpose is the avoidance of Corporate Tax. While incorporated foundations and trusts with separate legal personality are subject to Corporate Tax by default, they can apply for the transparent status. Unincorporated trusts, conversely, are automatically treated as fiscally transparent.
2. Who Can Be a Beneficiary?
The beneficiary condition is paramount for a foundation to be treated as fiscally transparent. The CTGFF1 and Ministerial Decision 261 stipulate that beneficiaries must be either:
- Identified or identifiable natural persons (i.e., individuals). This includes current family members as well as future generations.
- A Qualifying Public Benefit Entity, as defined under the Corporate Tax Law.
This provision offers significant flexibility, accommodating a broad range of family and philanthropic objectives. However, it mandates that the beneficiaries be clearly defined, ensuring a transparent and verifiable flow of benefits. The guide further clarifies that income received by individual beneficiaries from a tax-transparent foundation will generally not be subject to UAE Corporate Tax, provided that the income does not arise from a business or business activity conducted by the beneficiary that exceeds the AED 1 million threshold.
3. Multi-tier Structures
The new framework provides clear and decisive guidance on how multi-tier structures can be treated for tax purposes. Juridical persons that are wholly owned, directly or indirectly, by a Family Foundation may also apply to be treated as Unincorporated Partnerships. This allows for an uninterrupted chain of fiscally transparent entities, provided that each entity in the chain meets the qualifying conditions stipulated in Article 17(1) of the Corporate Tax Law. This provision is essential for sophisticated family offices that utilize holding companies and other subsidiaries for strategic asset management and investment. Any opaque entity in the chain, however, would break this transparency, making any subsidiaries below it ineligible for the same treatment.
4. Registration Rules
To align with broader compliance requirements, a Family Foundation, even one that intends to apply for fiscally transparent status, must first register for Corporate Tax and obtain a Tax Registration Number (TRN) within three months of its establishment. This is a critical initial step. Following this, the application to be treated as an Unincorporated Partnership must be submitted to the FTA. This application is not a one-time process; it must be filed annually, within nine months from the end of the tax period. The guide further stipulates that for applications made on or before December 31, 2025, special transitional relief is available, allowing the treatment to be effective from the start of a tax period ending on or before that date.
5. Ongoing Compliance Obligations
Obtaining approval for fiscal transparency is not the end of the compliance journey. Family Foundations that are treated as Unincorporated Partnerships must file an Annual Confirmation with the FTA. This confirmation, due within nine months from the end of the tax period, verifies that the foundation continues to meet all the qualifying conditions of Article 17(1) of the Corporate Tax Law throughout the tax period. Failure to do so may result in the loss of the transparent status and the imposition of a tax liability on the foundation itself. This necessitates a proactive and diligent approach to governance, record-keeping, and the continuous monitoring of the foundation’s activities, asset holdings, and beneficiary circumstances.
What This Means for You
These new provisions streamline the process for utilizing family foundations as effective wealth management tools. You are now presented with a clear path to maintain tax efficiency while ensuring robust compliance. The emphasis on a definitive set of conditions and an annual confirmation process requires careful management.
What You Should Do Now
To leverage these provisions and ensure compliance, you must take the following proactive steps:
- Assess Eligibility: Review your foundation’s structure and activities to confirm it meets the conditions for tax transparency, particularly the beneficiary and no-business-activity clauses.
- Register and Apply: If your foundation has not yet registered, do so without delay. Subsequently, prepare and submit the annual application for Unincorporated Partnership status.
- Verify Multi-tier Structures: For layered structures, ensure every entity in the chain meets the requirements for transparency and that there are no opaque entities that could compromise the status of the entire structure.
- Maintain Records: Implement rigorous record-keeping procedures to document compliance with all conditions, including detailed registers of beneficiaries and records of asset management activities.
- Consult a Professional: Engage with a tax professional to review your specific circumstances, assist with the application process, and ensure your ongoing compliance obligations are met efficiently and accurately.