New FTA Guidance on the taxation of Family Foundations in the UAE

The Guide clarifies which entities may be regarded as "similar entities" to foundations or trusts for the purposes of the Family Foundation regime. The FTA states that a similar entity is one that is intended to be used for the administration of family wealth and that is not a commercial company. Such an entity may wish to make an application to the FTA to be treated as fiscally transparent where the entity meets the relevant conditions.

At the same time, the Guide expressly clarifies that a Limited Liability Company (LLC) is not, in itself, regarded as an entity similar to a foundation or a trust. Consequently, an LLC cannot directly apply for fiscally transparent treatment as a Family Foundation.
However, this does not mean that an LLC is always excluded from a fiscally transparent structure. Where such a company is wholly owned and controlled by a Family Foundation, it may qualify for fiscally transparent treatment as a lower-tier juridical person, provided that all the relevant conditions are met.

One of the most significant updates concerns the FTA’s revised approach to multi-tier structures, where a lower-tier juridical person is owned by more than one Family Foundation.

According to Example 9 of the Guide dated May 2025, a juridical person jointly owned by two Family Foundations does not satisfy the requirement of being wholly owned and controlled by a single Family Foundation and, therefore, cannot qualify for fiscally transparent treatment.

The new Guide expands this example. The FTA now clarifies that a juridical person may still be regarded as wholly owned and controlled by a Family Foundation even when it is jointly owned by multiple Family Foundations, provided that those Family Foundations collectively own 100% of the ownership interests in the juridical person and each of them independently satisfies the conditions for fiscally transparent treatment.

To satisfy the ownership and control conditions, the Family Foundations themselves must be treated as Unincorporated Partnerships for Corporate Tax purposes, have the relevant beneficiaries, and serve the same holistic purpose of holding and managing assets.

This clarification is particularly important for structures where several Family Foundations are used in parallel for the purposes of asset holding, succession planning, joint investments or splitting of family wealth. It may also be relevant for families or co-investors that already hold investments jointly or are considering holding assets through multiple Family Foundations.

At the same time, careful consideration should be given to the manner in which contributions to the structure have been made, the persons involved in funding the structure and any potential tax implications that may arise. It is also important to ensure that the relevant conditions continue to be satisfied not only at the level of the lower-tier juridical person but also at the level of each individual Family Foundation. The loss of fiscally transparent status by one Family Foundation may affect the Corporate Tax treatment of the entire structure.

The newly introduced Section 7.8 of the Guide sets out the FTA’s position regarding the Corporate Tax implications for persons transferring assets or funds to a Family Foundation. Assets may be contributed either upon the establishment of the Family Foundation or at a later stage. The transferor may be the founder, the settlor, a beneficiary or any other person contributing assets to the Family Foundation. Such person may be either a natural person or a juridical person.

The Guide clarifies that the Corporate Tax consequences of a transfer depend primarily on two factors:

• Who transfers the assets, and
• Whether the transferor is, or would be as a result of the transfer, a Taxable Person for UAE Corporate Tax purposes

Where the transferor is a Related Party to the Family Foundation, the transfer must comply with the arm’s length principle. In other words, the terms of the transfer should be consistent with those that would have been agreed between independent parties.

Any gain or loss arising from the transfer of assets may be subject to UAE Corporate Tax where the transferor is, or would be as a result of the transfer, a Taxable Person.

At the same time, the Guide expressly states that where assets are transferred by a natural person and constitute Personal Investments or Real Estate Investments, the transfer should generally fall outside the scope of UAE Corporate Tax.

Scenario 1: Transfer of personal assets by a natural person

Where a natural person contributes a Personal Investment portfolio or real estate qualifying as a Real Estate Investment to a Family Foundation, such transfer should generally not give rise to UAE Corporate Tax at the level of the transferor.

Scenario 2: Transfer of assets by a juridical person

Where assets are transferred by a juridical person that is a UAE Taxable Person, the transfer is regarded as a transaction for Corporate Tax purposes. Accordingly, the transfer may give rise to a taxable gain or loss at the level of the transferor. Where the transfer takes place between Related Parties, the tax consequences for the transferor should be determined based on the market value of the asset in accordance with the arm’s length principle.

Where the transferor is a Qualifying Free Zone Person, consideration should be given not only to the general Corporate Tax rules but also to the conditions for maintaining Qualifying Free Zone Person status. Failure to comply with the arm’s length principle or any other applicable requirements may affect the application of the 0% Corporate Tax rate to Qualifying Income.

Corporate Tax implications upon receipt of assets by a Family Foundation

The Guide does not address the Corporate Tax consequences at the level of the Family Foundation upon the receipt of assets contributed with no or for partial consideration. In practice, the tax treatment is likely to depend on the accounting treatment of the transaction under IFRS, the status of both the transferor and the recipient, the existence of any relationship between the parties and the subsequent application of the fiscally transparent regime.

Particular attention should also be given to contributions made by third parties. Depending on the structure of the transaction and its accounting treatment, such receipts may not qualify as capital contributions and instead may be recognized in the profit or loss, potentially giving rise to taxable income. Accordingly, contributions of assets to a Family Foundation should be carefully analyzed in advance from an IFRS, legal documentation and Corporate Tax perspective.

The updated Guide also clarifies the Corporate Tax implications for juridical persons that become part of, or cease to form part of, a Family Foundation structure.

Where a juridical person that is a Taxable Person becomes wholly owned and controlled by a Family Foundation, it could cease to be a Taxable Person where certain conditions are met. Similarly, where a juridical person ceases to be wholly owned and controlled by a Family Foundation (or fails to meet other relevant conditions), it could change from being considered a fiscally transparent Unincorporated Partnership to being a fiscally opaque Taxable Person.

A key clarification introduced by the FTA is that a change in Corporate Tax status does not, in itself, result in a adjustment or step-up of the tax basis of the assets held by the juridical person. In other words, a transition into, or out of, the fiscally transparent regime does not automatically reset the tax value of the entity’s assets.

The updated Guide also includes clarification regarding Single Family Offices (SFOs) and Multi-Family Offices (MFOs) regulated by the relevant UAE authorities, including the Central Bank of the UAE, the Dubai Financial Services Authority (DFSA) and the Financial Services Regulatory Authority (FSRA).

The FTA confirms that a family office may be established as a juridical person that is wholly owned and controlled by a Family Foundation. However, given the nature of the activities typically carried out by family offices, such entities are unlikely to satisfy all the conditions required to qualify for fiscally transparent treatment. This is because a family office generally provides management, administration, investment advisory or other services in relation to family wealth. Such activities are likely to constitute a Business or Business Activity for Corporate Tax purposes.

Accordingly, where a structure includes a family office, consideration should be given to separating the activities of the family office from those of entities holding investment assets and seeking fiscally transparent treatment. This helps reduce the risk that the active service activities of the family office could adversely affect the availability of the fiscally transparent regime for other entities within the structure.

The family office itself may continue to be treated as a separate Taxable Person. Where it is established in a Free Zone, it may qualify for the 0% Corporate Tax rate on Qualifying Income, provided that all the applicable conditions are satisfied. Accordingly, a distinction should be maintained between the Family Foundation and passive asset-holding entities, on the one hand, and the family office providing management and administrative services, on the other. Transactions between the family office, the Family Foundation and other group entities should be properly documented and carried out in accordance with the arm’s length principle.