New UAE Tax Rules for Family Foundations

The introduction of the Corporate Tax Law in the United Arab Emirates, through Federal Decree-Law No. 47 of 2022, marks a significant shift in how family foundations are treated for tax purposes. The Federal Tax Authority (FTA) has issued a dedicated Corporate Tax Guide titled “Taxation of Family Foundations (CTGFF1)” in May 2025, which outlines the application of corporate tax to family foundations, including trusts and similar entities. 

This guide provides clarity on registration requirements, eligibility for tax-transparent status, and compliance responsibilities.

Definition and Legal Framework

A family foundation, under the UAE corporate tax law, refers to any foundation, trust, or similar entity that meets the conditions specified in Article 17(1) of the Corporate Tax Law. These entities are often used for wealth management, asset protection, and succession planning. They may be established in various UAE free zones such as the DIFC, ADGM, and RAK ICC or even in foreign jurisdictions.

Family foundations may be incorporated or unincorporated.

Incorporated ones are legal entities and might pay corporate tax unless approved for tax transparency.

Unincorporated trusts are tax-transparent by default and treated like partnerships, with no need to apply.

Tax Treatment and Transparency

A family foundation under Article 17(1) can ask the FTA to be treated as an unincorporated partnership. This makes it tax-transparent, tax passes to beneficiaries, not the foundation.

Income, costs, assets, and debts go to each beneficiary by their share.

To qualify, five rules must be met:

1. Beneficiaries must be known individuals or public benefit groups.
2. Main activity must involve handling savings or investments.
3. No business. The foundation can’t run a business like a person would.
4. No tax dodge, the foundation can’t exist mainly to skip tax.
5. Distributions, if public benefit groups are involved, taxable income must be exempt or paid out within six months.

If all are met, the foundation is tax-transparent.  If not, or if no application is made, it stays taxed as a legal entity.

Application and Registration Process

All family foundations must register for corporate tax with the FTA via EmaraTax.
This includes filing key documents, beneficiary details, and financial data.

If the foundation is a juridical person, it must apply to be treated as an unincorporated partnership.
The application must show it meets the five Article 17(1) conditions.

If approved, its fully owned subsidiaries can also apply, if they meet the same rules.

Unincorporated trusts don’t need to apply for transparency, but must still follow tax rules, confirm details yearly, and report income to beneficiaries.

Multi-Tier Structures

Family foundations often operate through multi-tier structures, where the main foundation owns and controls subsidiary entities. These subsidiaries may also apply for transparent treatment if they are wholly owned and controlled by a family foundation treated as an unincorporated partnership. 

Note: The chain of ownership must remain uninterrupted, and each entity must comply with the conditions of Article 17(1).

For instance, if a family foundation owns Subsidiary A, which in turn owns Subsidiary B, both subsidiaries may be eligible for transparent treatment if they meet the requirements. If any entity in the chain fails to qualify or loses its transparent status, all entities below it in the ownership structure become taxable.

Tax Implications for Beneficiaries

Income from a tax-transparent family foundation is passed to its beneficiaries.

For individuals, this income is usually tax-free if it counts as personal or real estate investment income.

• Personal investment income means earnings from non-business activity without a commercial license.
• Real estate investment income includes rent or property gains that don’t need a license.

Public benefit entities pay no tax if registered under Cabinet Decision No. 37 of 2023.
If not registered, they must report their share unless the income is exempt or paid out on time.

Foreign Family Foundations

Foreign family foundations with a nexus in the UAE, such as owning real estate or earning income from UAE sources, are treated as non-resident persons. These foundations must register for corporate tax and may apply for transparent treatment if they satisfy Article 17(1).

Examples provided in the guide illustrate scenarios where foreign foundations, managing UAE-based properties and distributing income to natural persons or charitable entities, successfully apply for and maintain transparent status.

Compliance Requirements

Family foundations must fulfill several compliance obligations:

• Tax registration on EmaraTax
• Annual confirmation of meeting Article 17 conditions
• Notification of any change in structure or beneficiary composition
• Maintenance of accurate financial records

Foundations that fail to meet these requirements may lose their tax-transparent status and become subject to corporate tax.

Summary

The UAE’s new corporate tax framework provides a structured and flexible approach to the taxation of family foundations. The new rules recognize the importance of these entities in managing intergenerational wealth. 

If they meet the conditions under Article 17 and Ministerial Decision No. 261 of 2024, they can be treated as tax-transparent. This shifts the tax to beneficiaries, avoiding tax at the foundation level and supporting both private and public benefit goals.

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Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.