Salman Rahat

Introduction to the Family Foundations in the Emirates

Family Foundations

Not long ago, the UAE adopted the concept of foundations into their legal framework. There are 3 different eminent free zones in the Emirates. We will discuss the legal and useful content. It includes ADGM, DIFC, and RAKICC.

The free zones offer endless opportunities for establishing family foundations within the country. We will dig into and explore the tax implications of the foundations. We will also shed light on foundations, especially those related to foundations engaging in the activity of holding a portfolio of securities. It is for the benefit of beneficiaries in the UAE. Hire Lawyers in Dubai for a better understanding. Lawyers in Dubai are the top rated lawyers in UAE.  

Foundations Subject to Corporate Taxation

UAE foundations are recognized as incorporated bodies. They have their own separate legal identities. They are established as per the juridical entities established under UAE legislation. Search Lawyers for further details and services.

It includes the legal regulations from ADGM, DIFC, and RAKICC. All the foundations fall under the definitions of taxable person and resident person as per the law. It is governed under the Corporate Tax Law (CTL). 

  • In general, it is subject to Corporate Tax (CT). It is treated the same as any other company incorporated in the country. Lawyers in Dubai who are experts in tax are called Taxation Legal Experts or Lawyers
  • The Corporation Tax Guide (CTG) explains the special regime that applies to family foundations in the country. It is done for the benefit of natural persons. It is a unique corporate tax treatment that is introduced.
  • To address the matter, CTL allows family foundations to be applied. It is to be treated as an “Unincorporated Partnerships” under some specific conditions. 
  • It may include a public-benefit individual, entity, or both. The primary activity of the Family Foundation is to manage and organize the funds and assets more effectively. 
  • The activity also involves receiving, holding, investing, disbursing, or arranging assets or funds. Assets and funds are usually associated with savings or investments.
  • The Family Foundation should avoid conducting any activity that would qualify as a business activity. It may be undertaken directly by its founder, settler, or any other beneficiaries.
  • If a beneficiary holds public benefit entities, it will help them. It says that if approved, a tax-transparent status is granted to Family Foundations. 
  • Nevertheless, for tax purposes, beneficiaries are considered. Beneficiaries who directly own or benefit from the foundation’s activities and assets can take advantage. On the flip side, for legal purposes, the Family Foundation retains ownership of the assets.
  • If we assume a Family Foundation with identified or identifiable natural persons as beneficiaries, the focus shifts. Now the emphasis is on the tax treatment applicable to these individuals. 
  • Following the CTG, a natural person is subject to Corporate Tax only if he or she is engaged in business or business activities. The business activity should be within the UAE. Earnings or turnover that exceed one million AED in a calendar year are accounted for. 
  • Personal Investment is termed as “investment activity conducted by a natural person for their account that does not require a license. Besides, it is not considered a commercial business under the Federal Decree-Law of UAE.
  • The implication is that incomes earned by a Family Foundation, successfully apply for tax transparency. Whereas it does not qualify for engaging in Business or Business Activities and thus remains exempt from Corporate Tax. This exemption applies to both: the Foundation and its beneficiaries.

The Future Opportunities

There are implications and ramifications of imposing corporate tax on all legal entities in the UAE. It is evenly applied to offshore entities that commonly utilize personal assets and funds in previous years.

In recent years, the Family Foundations emerged as tax-efficient instruments. It has encouraged the effective management of personal assets and wealth.

The assets and funds can be organized efficiently on behalf of family members. It has potentially replaced the offshore entities that were prevalent in the past years in the UAE.

The UAE’s tax landscape has been evolving from time to time. The changes have provided a well-structured and transparent approach to the taxation of Family Foundations engaged in specific activities. 

The entities seek tax efficiency and compliance, understanding the nuances of the Corporate Tax Law and its special provisions for Family Foundations. 

The paradigm shift has placed the Family Foundations as a viable alternative. It is an ideal option available for individuals seeking effective wealth management structures in the Emirates

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