Key Updates on the Taxation of Family Foundations in the UAE

Download the full client alert here.

In May 2025, the UAE Federal Tax Authority (the “FTA”) published the Corporate Tax Guide on the Taxation of Family Foundations (the “Guide”). The Guide provides substantial insight into the UAE corporate tax implications of commonly used UAE succession vehicles and structures. Below is an outline of the key aspects of the Guide, including the UAE tax treatment of foundations, trusts and underlying entities.

1. Overview of UAE Corporate Tax

The UAE corporate tax law (the “Corporate Tax Law”) generally imposes a 9% corporate tax (the “Corporate Tax”) on the “taxable income” of “taxable persons.”

Under the Corporate Tax Law, “taxable income” is defined as income that is subject to the Corporate Tax. The Corporate Tax Law provides for various, significant exemptions from taxable income, meaning that certain income received by a resident or non-resident taxable person (discussed below) would not be subject to the Corporate Tax. Such exemptions apply, for example, with respect to (a) dividends or other profit distributions received from a UAE resident juridical person, or (b) income from a participating interest in a foreign juridical person under certain circumstances.

Generally, a “taxable person” includes a UAE juridical person, such as a foundation or a corporate entity established in the UAE. As a resident person, such juridical person would be subject to Corporate Tax on its worldwide taxable income.

A foreign foundation would generally be considered a “taxable person” under the Corporate Tax Law if it (a) has a permanent establishment in the UAE, (b) derives UAE sourced income, or (c) has a nexus in the UAE (as specified in a resolution issued by the Cabinet at the suggestion of the Minister). As a non-resident person, such foundation would be subject to Corporate Tax on its taxable income (i) attributable to its UAE permanent establishment, (ii) not attributable to the UAE permanent establishment but that is UAE sourced income, and (iii) attributable to its UAE nexus.

A taxable person such as a foundation, however, may be treated as fiscally transparent and thus non-taxable if it qualifies for the Family Foundation exception under Article (17) of the Corporate Tax Law (the “Family Foundation Exception”) and obtains approval from the FTA.

Certain vehicles, such as unincorporated trusts, are deemed to be fiscally transparent (per se fiscally transparent) and do not need to apply for a Family Foundation Exception to obtain fiscal transparency.

Income of entities that meet the Family Foundation Exception or income of vehicles that are per se fiscally transparent would be attributable to their beneficiaries and the character of the income would carry out to such beneficiaries.

2. Scope of the Family Foundation Exception: Entities Covered

The Corporate Tax Law broadly defines a Family Foundation to include “any foundation, trust or similar entity.”

(i) Unincorporated Trusts.

Unincorporated trusts are, by default, considered fiscally transparent for Corporate Tax purposes and do not have to apply for the Family Foundation Exception to be fiscally transparent. Unincorporated trusts are trust structures without a separate legal personality where the trustee of the trust has legal ownership of the trust property. Such trusts include trusts established in the Dubai International Financial Centre (“DIFC”), Abu Dhabi Global Market (“ADGM”) or foreign common law jurisdictions.

The income of unincorporated trusts is attributed directly to the beneficiaries. Please note that the Guide does not discuss how taxable income is allocated among the beneficiaries where the trust instrument does not specify income percentages or where the trust instrument does not require income to be distributed (or how taxable income would be allocated where a purpose trust is involved).

While unincorporated trusts are per se treated as fiscally transparent, qualifying under the Family Foundation Exception may also be relevant for these trusts if they form a part of a multi-tier structure. For example, if an unincorporated trust wholly owns an entity with a separate legal personality and such wholly owned entity intends to be treated as fiscally transparent, the unincorporated trust would have to qualify under the Family Foundation Exception for such treatment to apply. If an unincorporated trust does not meet the requirements to be treated as a Family Foundation, the underlying entity could not be fiscally transparent.

(ii) Incorporated Trusts.

Incorporated trusts are trusts that have a separate legal personality and are treated as juridical persons. This category includes trusts established under UAE Federal Decree-Law No. 31 of 2023. As explained above, such trusts are subject to Corporate Tax unless they qualify for the Family Foundation Exception.

(iii) Foundations.

Like incorporated trusts, foundations (such as those formed in the DIFC, ADGM or other foreign jurisdictions which are common succession planning vehicles in the UAE) have separate legal personality and are treated as juridical persons. As such, they are subject to Corporate Tax unless they qualify for the Family Foundation Exception.

3. Family Foundation Exception

(i) General Requirements

The Family Foundation Exception contains a number of requirements:

A. Beneficiary Requirement: The Family Foundation must be established for the benefit of identified or identifiable natural persons and/or for the benefit of a public benefit entity. Where the beneficiary is a public benefit entity, certain distribution requirements provided under the Ministerial Decision No. (261) of 2024 need to be met (the “Distribution Requirements”, discussed below).

B. Principal Activity Requirement: The Family Foundation’s primary activity must generally involve managing assets or funds associated with savings or investments.

C. No Business Activity Requirement: The Family Foundation must not engage in activities that would constitute a business or business activity if conducted by a natural person who is its founder, settlor, or any of its beneficiaries.

D. No Tax Avoidance Requirement: The Family Foundation’s primary purpose must not be Corporate Tax avoidance.

E. Minister Requirements. Any other conditions as may be prescribed by the Minister.

The Guide clarifies that there is no requirement for a Family Foundation to be an entity formed in the UAE and that it is possible for a foreign (i.e., non-UAE) entity to meet the Family Foundation Exception.

(ii) “Public Benefit Entity” As Beneficiary And Distribution Requirements

With respect to the Beneficiary and Distribution Requirements referenced above, the Guide provides that a “public benefit entity” is not specifically defined in the Corporate Tax Law and, therefore, takes its ordinary meaning. The Guide further provides that a public benefit entity is typically established for the welfare of the public and society, promoting philanthropy, community services or corporate and social responsibility. For example, a not-for-profit or charitable organization, established either in the UAE or another jurisdiction, is likely to be a public benefit entity.

As noted above, where “public benefit entities” are beneficiaries of a Family Foundation, one of the two additional Distribution Requirements has to be met:

A. such beneficiaries are not deriving income (through the Family Foundation) that would be considered as taxable income had they derived it directly in their own right, or

B. the income that would be considered as taxable income is distributed to the relevant beneficiaries within 6 months from the end of the relevant tax period.

The Guide clarifies that condition A. above would be met where either (i) all the income derived by a beneficiary that is a public benefit entity is exempt income (i.e., not taxable income), or (ii) the public benefit entity is a “qualifying public benefit entity”. Exempt income includes, for example, dividends from UAE companies and income from a participating interest in a foreign company. A “qualifying public benefit entity” is an entity that meets the conditions set out in Article 9 of the Corporate Tax and is listed in the relevant cabinet decision.

Where condition A. is not met, condition B. above must be met in order for the Family Foundation to be treated as fiscally transparent.

(iii) Application to the FTA

To obtain fiscally transparent treatment, a Family Foundation must file an application with the FTA via the “EmaraTax” digital tax services platform. To file the application, a Family Foundation must first be registered for UAE corporate tax. If the application is approved, the Family Foundation will be treated as fiscally transparent and the beneficiaries would be treated as directly owning or benefiting from the activities and assets of the Family Foundation effective from the commencement of the tax period specified in the application or any other date determined by the FTA.

4. Multi-Tier Structures

Underlying entities held directly or indirectly by a Family Foundation generally may also be treated as fiscally transparent if: (i) the Family Foundation wholly owns and controls, either directly or indirectly, one or more such entities; and (ii) each entity in the structure meets the conditions for the Family Foundation Exception individually. The Guide provides more clarity and numerous examples as to the application of the Family Foundation Exception with respect to multi-tier structures.

Example with Subsidiaries (expanded from the Guide)

Family Foundation N is an ADGM foundation set up to hold the assets of the members of Family N. Family Foundation N established two UAE-incorporated LLCs, Subsidiary A and Subsidiary B, that only hold real estate properties for the Family N’s members. Subsidiary A is wholly owned and controlled by Family Foundation N and Subsidiary B is wholly owned and controlled by Subsidiary A. Assuming that the Family Foundation meets all of the requirements for Family Foundation Exception and the FTA approves its application, given that both Subsidiary A and Subsidiary B are wholly owned and controlled, either directly or indirectly, by Family Foundation N, they may also apply for fiscally transparent status, provided that each LLC individually meets the requirements for Family Foundation Exception. If the FTA approves their applications, all income, expenditure, assets and liabilities of Subsidiary A and Subsidiary B will be deemed to be the income, expenditure, assets and liabilities of the members of Family N who are the ultimate beneficiaries of Family Foundation N. Under the same assumptions, the same analysis and outcome would apply with respect to Family Foundation N if it were organized as a DIFC trust, which is an unincorporated trust except that the trust itself would not need to apply for Family Foundation status (as it is per se fiscally transparent), though it would need to meet the Family Foundation Exception requirements to apply for its subsidiaries.

5. Compliance and Annual Confirmation

To ensure continuous compliance, the Family Foundation must file an annual confirmation to the FTA.

6. Key Takeaways

(i) Unincorporated trusts are automatically fiscally transparent, while incorporated trusts must apply and obtain fiscally transparent treatment under the Family Foundation Exception.

(ii) The Corporate Tax Law and other UAE authorities prescribe requirements that entities must meet to satisfy the Family Foundation Exception. Please see discussion above.

(iii) Multi-tier structures require careful compliance at each level to maintain fiscal transparency.

(iv) Foreign entities that are considered taxable persons may also apply for the Family Foundation Exception.

(v) Pursuing the Family Foundation Exemption should be carefully considered in light of the foundation’s income profile and the available Corporate Tax exemptions (such as the exemption for dividends received from UAE residents and for income from foreign participations under certain circumstances), which may diminish the practical need to qualify under the Family Foundation Exemption.

Should you have any questions or require assistance in assessing the impact of these changes on your estate planning vehicles, please do not hesitate to contact us.

About Curtis

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm. Headquartered in New York, Curtis has 19 offices in the United States, Latin America, Europe, the Middle East and Asia.

Curtis’ Family Office practice comprises attorneys from across the firm, including key jurisdictions across the Middle East, the U.S. and Europe. We have been trusted advisors to high-net-worth and ultra-high-net-worth families for generations, understanding that our role extends far beyond legal advice—we are stewards of family legacy. Our integrated thinking allows us to provide nuanced, comprehensive guidance that traditional practices simply cannot match.