- with readers working within the Retail & Leisure industries
- within Employment and HR, Technology, Litigation and Mediation & Arbitration topic(s)
Introduction
Family-owned businesses are the backbone of the UAE economy. They account for a substantial share of private wealth, employment, and investment, and they underpin the country's commercial landscape. As these businesses evolve – often expanding across jurisdictions and generations – the question of how to structure ownership, governance, and succession becomes increasingly complex.
At the centre of many modern wealth strategies are family foundations and similar wealth-management structures. These vehicles are designed to facilitate succession planning, asset protection, and long-term governance, while maintaining control and continuity across generations.
Under the UAE's Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”), Family Foundations and their wholly owned and controlled entities fall within the Corporate Tax regime but are subject to a bespoke treatment that recognises their unique purpose. The legislative updates, particularly Ministerial Decision No. 261 of 2024 and FTA Decision No. 5 of 2025, now provide far greater procedural clarity and compliance requirements.
The Legal Landscape: Article 17 and the 2025 Reforms
The primary legislative provision governing family foundations is Article 17 of the Corporate Tax Law. It allows a Family Foundation – or a juridical person wholly owned and controlled by a family foundation – to apply to be treated as an Unincorporated Partnership for Corporate Tax purposes. This means the foundation can elect fiscal transparency, so income is “looked through” and attributed directly to beneficiaries rather than being taxed at the foundation level.
However, this election is not automatic. It requires a formal application to the Federal Tax Authority (FTA) and must satisfy a series of legal, factual, and procedural conditions.
The current framework comprises:
- Federal Decree-Law No. 47 of 2022 – Article 17 sets the substantive rules.
- Ministerial Decision No. 261 of 2024 – Defines key concepts and conditions for treatment.
- FTA Decision No. 5 of 2025 – Introduces procedural deadlines, annual confirmation requirements, and transitional provisions.
What Is a Family Foundation?
A Family Foundation is a legal entity, often formed under UAE laws (such as DIFC or ADGM or RAK ICC foundation regimes) or foreign law, that owns, manages, and distributes assets for a defined group of beneficiaries, typically family members (but not required). Its core objectives include:
- Facilitating succession planning and inter-generational wealth transfer.
- Protecting assets from fragmentation, disputes, or external claims.
- Centralising governance and decision-making.
- Holding controlling stakes in family businesses or investment portfolios.
- Supporting philanthropic or charitable goals.
The Corporate Tax framework recognises these objectives but imposes conditions to ensure foundations are not used for commercial activities that fall outside their intended purpose.
Tax Treatment: The Principle of Transparency
By default, a Family Foundation is a juridical person and therefore taxable. However, if the conditions of Article 17 are met, the foundation may elect to be treated as an Unincorporated Partnership. This creates a fiscally transparent structure in which income is attributed to beneficiaries, not taxed at the foundation level.
Conditions for Transparency
To qualify, the following key conditions must be satisfied:
- Purpose Test: The foundation's primary purpose must be family wealth management, succession, or charitable activity – not commercial profit-making.
- Beneficiary Composition: Beneficiaries must consist predominantly of natural persons related to the founder and/or charitable organisations.
- Distribution Mechanics: Income must ultimately be distributed (or deemed distributed) to those beneficiaries.
- Control and Governance: The founder must relinquish direct control, consistent with the nature of a genuine wealth-management vehicle.
- Application Timing: A formal application must be submitted before the end of the relevant Tax Period. Where submitted on or before 31 December 2025, the FTA may allow transparency to apply retroactively for any Tax Period ending on or before that date.
- Annual Confirmation: Once transparency is approved, the foundation must file an annual confirmation within nine months of the end of each Tax Period, certifying that all conditions were met.
Where these conditions are met, the foundation itself is not taxed – instead, the tax liability shifts to the beneficiaries according to their own tax status.
Implications for Beneficiaries
The tax outcome for beneficiaries depends on their legal character and activities:
- Natural persons: Passive income (e.g. investment returns) remains outside the scope of Corporate Tax.
- Corporate entities: Their share of foundation income forms part of their taxable profits.
- Foreign beneficiaries: Treatment depends on applicable double tax treaties, tax residency, and foreign domestic tax rules.
This “look-through” approach ensures foundations function as wealth-management conduits rather than taxable layers, but it also increases the importance of correct classification, reporting, and governance.
Strategic Role in Family Business Structures
1. Holding and Governance Vehicle
Foundations often serve as ultimate holding entities, consolidating ownership of operating companies, real-estate SPVs, and investment vehicles. This approach centralises governance, reduces succession disputes, and simplifies decision-making.
Example:
- Foundation → Holding Company → Operating Subsidiaries
- Profits flow to the foundation (treated as transparent), and taxation occurs at the beneficiary level.
2. Multi-Jurisdictional Structures
In cross-border groups, foundations may hold foreign subsidiaries. This raises additional considerations around participation exemption, CFC rules, and withholding taxes. Structuring must align UAE transparency elections with foreign tax regimes to avoid double taxation.
Example:
- Foundation (UAE) → Cayman Holding → EU Subsidiary → Global Operations
- Depending on treaty access and transparency status, Dividends may be exempt at the beneficiary level but taxed in foreign jurisdictions.
3. Estate and Succession Planning
Foundations are particularly effective for succession planning. By transferring ownership of assets during the founder's lifetime, families avoid probate delays, reduce fragmentation, and ensure governance continuity. The foundation's charter and by-laws can prescribe voting rights, distribution rules, and governance mechanisms that last for generations.
Common Pitfalls and Compliance Risks
- Missed Application Deadlines: Applications must be filed before the end of the relevant tax period (or by 31 December 2025 for retroactive treatment).
- Failure to File Annual Confirmation: This can result in the loss of transparency status and unexpected tax exposure.
- Beneficiary Profile Drift: Adding non-qualifying beneficiaries risks disqualification.
- Commercial Business Activity: Carrying out any commercial business activities may disqualify the foundation from being considered transparent.
Strategic Considerations for Families and Advisors
- Plan Early: Tax and governance considerations must be integrated into the foundation's design from the outset.
- Monitor Beneficiaries: Regularly review beneficiary composition to ensure continued eligibility.
- Monitor activity of the foundation: Regularly review the activity of the foundation along with associated Licences held
Conclusion
The UAE's Corporate Tax treatment of family foundations offers a clear, structured pathway for families seeking to preserve and grow their wealth across generations. The legislative developments introduced greater procedural clarity, mandatory compliance obligations, and transitional flexibility – but they also raised the stakes for non-compliance.
The strategic potential of Family Foundations is considerable, but so too is the complexity of their tax treatment. Small differences in governance documents, beneficiary composition, or election timing can materially alter tax outcomes. As a result, families should treat the establishment and administration of these structures as a strategic exercise requiring tailored legal and tax advice – not as a mere formality.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
