UAE Tax Updates (May, 2025)

Tax Update: CTGFF1
Corporate Taxation of Family Foundations:

Effective Date:

May 2025 – Applicable to Tax Periods commencing on or after 1 June 2023 under Federal Decree-Law No.47 of 2022 on the Taxation of Corporations and Businesses.

Details:

• This guide outlines how Family Foundations are treated under UAE Corporate Tax Law.
• A Family Foundation is defined as a foundation, trust or similar entity that meets Article 17(1) conditions.
• These Family Foundations may apply to be treated as Unincorporated Partnerships (fiscally transparent) if they meet all required conditions.
• Applicable to both UAE and foreign entities, as long as they have nexus in the UAE or are otherwise subject to UAE tax law.
• Trusts that do not have separate legal personality are treated as fiscally transparent by default and do not need to apply for Unincorporated Partnerships status.
• If a Family Foundation ceases to meet the conditions of Article 17(1) during any Tax Period, it will no longer be treated as fiscally transparent for that period, and may become subject to Corporate Tax as a taxable person.
• Conditions to qualify under Article 17(1) of the Corporate Tax Law:

• The Family Foundation must be established for the benefit of identified or identifiable natural persons, or for the benefit of a public benefit entity, or both.
• The principal activity of the Family Foundation must be to receive, hold, invest, disburse, or otherwise manage assets or funds associated with savings or investment.
• The Family Foundation does not conduct any activity that would have constituted a Business or Business Activity had the activity been undertaken, or its assets been held, directly by a natural person who is its founder, settlor, or any of its beneficiaries.
• The Family Foundation's main or principal purpose must not be the avoidance of Corporate Tax.
• The Family Foundation meets one of the distribution conditions where any of the beneficiaries are public benefit entities.

Impact:

• Family Foundations approved as fiscally transparent avoid entity-level corporate tax, with tax obligations assessed at the level of beneficiaries.
• Natural person beneficiaries generally not subject to Corporate Tax on their share (as income is personal or real estate investment income).
• Public benefit entities may be subject to Corporate Tax unless exempt under Cabinet Decision No. 37 of 2023.
• Enhances clarity and planning efficiency for families using UAE or foreign structures for wealth management.
• Promotes legal certainty in applying for fiscal transparency and managing cross-border investment structures.

Applicability:

• Foundations, trusts, or similar entities in the UAE or abroad managing family assets.
• Multi-tier structures owned by Family Foundations.
• Family offices, legal and tax advisors, wealth management consultants.
• Natural persons and public benefit entities as beneficiaries.
• UAE and foreign entities with nexus (e.g., owning UAE real estate).

Compliance Tips:

• Review all Article 17 conditions before applying for Unincorporated Partnership status.
• Maintain records confirming beneficiary types and principal activities.
• For entities with public benefit entity beneficiaries, ensure timely distributions or verify exemption status.
• In multi-tier structures, ensure each layer meets the conditions consistently throughout the tax period.
• Submit applications and annual confirmations within deadlines.
• Monitor FTA updates and relevant Ministerial/Cabinet Decisions (e.g., No. 261 of 2024, No. 5 of 2025).

Expanded Corporate Tax Exemption for Foreign Entities Owned by Exempt UAE Persons:
Cabinet Decision No. (55) of 2025

• Effective Date: 1 June 2023

Details:

• The UAE Ministry of Finance issued Cabinet Decision No. (55) of 2025 under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.
• This Decision expands the scope of corporate tax exemptions by extending it to foreign entities that are wholly owned by certain exempt persons, specifically:

• Government entities
• Government-controlled entities
• Qualifying Investment Funds
• Public pension or social security funds

• Before this Decision, only entities incorporated in the UAE could qualify for exemption. Foreign entities, even if wholly owned by exempt entities or operating through UAE branches, were not eligible for exemption.
• The updated Decision permits these foreign entities to benefit from the exemption, provided they meet all the conditions set out by the Ministry of Finance and Federal Tax Authority.

Impact:

• Promotes equal tax treatment between UAE-incorporated entities and foreign entities owned by exempt UAE persons.
• Supports structural flexibility for sovereign wealth funds, investment funds, and public institutions that use foreign holding structures.
• Reinforces the UAE's commitment to a fair, modern and competitive tax system, aligned with international best practices.
• Strengthens the UAE's position as an attractive jurisdiction for holding companies and institutional investment platforms.

Applicability:

• Applies to foreign-incorporated entities that are:

• Wholly owned, directly or indirectly, by one or more qualifying exempt UAE persons (as defined above)
• Conducting activities that comply with the relevant conditions under Cabinet Decision No. (55) of 2025 and any related guidance.

• May extend to UAE branches of such foreign entities, if compliant with the defined scope and substance requirements.
• Exemption is not automatic, entities must satisfy all prescribed conditions to benefit.

Compliance Tips:

• Foreign entities and their UAE branches may qualify for exemption only if the relevant conditions are met.
• Businesses should await further clarification or implementing guidelines from the Ministry of Finance or the Federal Tax Authority.
• As of now, no procedural guidance has been issued, and the official text of the Decision has not yet been published.

Tax Update: CTGFF2
Top-Up Tax on Multinational Enterprises (MNEs)

• Effective Date: 1 January 2025

Details:

• This Decision adopts OECD Commentary and Administrative Guidance as interpretative aids to apply the Top-Up Tax rules to Multinational Enterprises in the UAE.
• The guidance includes six core OECD documents on GloBE Model Rules, such as:

• Consolidated Commentary to the Global Anti-Base Erosion (GloBE) Model Rules (2023)
• Administrative Guidance on Pillar Two (June 2024)
• Central Record Guidance (2025)
• Specific Articles (8.1.4, 8.1.5, and 9.1) clarifications
• GloBE Information Return (January 2025)
• These materials provide administrative alignment with international GloBE standards and cover income inclusion rules, undertaxed payments rules, and safe harbours.

Impact:

• Ensures uniform application of Top-Up Tax provisions for MNEs with effective tax rates below the 15% minimum.
• Aligns UAE implementation with OECD/G20 BEPS Inclusive Framework, enhancing global tax compliance and transparency.
• Clarifies computational and reporting standards, fostering certainty for affected MNEs.

Applicability:

• Applies to Multinational Enterprise groups with consolidated revenue exceeding EUR 750 million.
• Relevant to UAE headquartered MNEs and foreign-headed MNEs with subsidiaries or operations in the UAE.

Compliance Tips:

• Review the OECD GloBE Commentary and Administrative Guidance referenced in the Decision.
• Prepare GloBE Information Returns in line with OECD templates and UAE reporting standards.
• Monitor further domestic guidance for filing obligations and calculation methods.
• Align internal tax systems with OECD-defined substance and data testing requirements.

Temporary Relaxation of REIT Listing Thresholds
Ministerial Decision No. 96 of 2025

• Effective Date: 14 April 2025
• Applies to tax periods starting on or after 1 January 2025

Details:

• Temporarily reduces the minimum public float requirement for Real Estate Investment Trusts (REITs) listed for the first time on a Recognised Stock Exchange between 1 May 2025 and 31 May 2025.
• The float requirement during this window is 10%, down from the standard threshold under Cabinet Decision No. 34 of 2025.
• The Decision supplements the conditions to qualify for corporate tax exemption under the Federal Corporate Tax Law.

Impact:

• Facilitates initial public offerings of REITs and encourages broader participation in the UAE real estate investment market.
• Promotes market entry of REITs during a designated period without compromising long-term compliance thresholds.
• Supports real estate sector liquidity and investor diversification goals.

Applicability:

• Newly listed REITs on Recognised Stock Exchanges during May 2025.
• Existing REITs or listings outside this window remain subject to the standard requirements.

Compliance Tips:

• Confirm listing dates fall within the 1–31 May 2025 window to benefit from the reduced float threshold.
• Monitor shareholding structure to ensure compliance with exemption requirements under Cabinet Decision No. 34 of 2025.
• Maintain eligibility documentation to support tax exemption status.

Unincorporated Partnerships as Taxable Persons
Cabinet Decision No. 63 of 2025

• Effective Date: 1 June 2023
• Issued on 14 May 2025, applies retroactively as per the Corporate Tax Law

Details:

• Formalizes the process for treating Unincorporated Partnerships as Taxable Persons in their own right under Article 16(8) of the Corporate Tax Law.
• Upon Federal Tax Authority (FTA) approval, such partnerships are treated as juridical persons and UAE Resident Persons.
• Enables flow-through entities to opt into entity-level taxation subject to compliance.

Impact:

• Allows flexibility for partnerships seeking limited liability or regulatory benefits of corporate personhood.
• Enables better structuring options for investment vehicles and joint ventures within the UAE.
• Enhances regulatory clarity for taxpayers and aligns with international norms.

Applicability:

• UAE-based Unincorporated Partnerships that voluntarily elect to be treated as taxable entities.
• Partnerships with qualifying economic substance and business activities.

Compliance Tips:

• File a formal application with the FTA to be recognized as a taxable juridical person.
• Ensure compliance with substance, registration, and ongoing filing obligations.
• Track and evaluate implications for existing partners' tax positions and reporting.

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.