2 July 2025 • 4 minute read
FTA published Corporate Tax Guide on Family Foundations
Background
On 27 May 2025, the UAE Federal Tax Authority (FTA) published a detailed Corporate Tax (CT) Guide on the taxation of Family Foundations (Guidelines), providing further clarity on the treatment of foundations, trusts and similar entities (collectively referred to as Family Foundations in the Guidelines) under the UAE CT Law.
The Guidelines outline the conditions under which Family Foundations may qualify as unincorporated partnerships and can thus be treated as transparent entities for tax purposes. The Guidelines also set out related compliance obligations and reporting requirements.
Key Highlights of the FTA’s Guidelines
- Definition and Scope
The Guidelines define Family Foundations as foundations, trusts, and similar entities established for the benefit of family members or public benefit entities. The determination of Family Foundation status relies on both tax and non-tax legislation.
Foreign entities may still be eligible to meet the conditions of a Family Foundation under the UAE CT Law and apply for unincorporated partnership/fiscally transparent treatment, subject to meeting the relevant conditions. Other entities may be considered as Family Foundations if they are used for the administration of family wealth and they do not engage in commercial activities.
- Unincorporated Partnership Treatment
A Family Foundation may apply to the FTA to be treated as an Unincorporated Partnership. As an Unincorporated Partnership, the Family Foundation itself is not subject to CT, rather the relevant income is taxed directly in the hands of the beneficiaries in proportion to their distributive share.
The Guidelines elaborate on the conditions of a Family Foundation under Article 17(1) of the UAE CT Law. These include:
- Beneficiaries are limited to natural persons or public benefit entities.
- The principal activity of the Family Foundation is the holding or investment of assets (principal activity condition)
- No business activity is conducted.
- The main purpose of the Family Foundation is not tax avoidance.
- Distribution rules are followed where public benefit entities are beneficiaries.
Some Family Foundations, such as Unincorporated Trusts and other entities that do not have a separate legal personality, are automatically treated as Unincorporated Partnerships/fiscally transparent for UAE CT Purposes.
- Multi-tier Structures
The Guidelines address how multi-tiered foundation structures are treated, including the treatment of wholly owned subsidiaries.
Juridical persons that are wholly owned by a Family Foundation may be treated as an Unincorporated Partnership/fiscally transparent, where the juridical person is held through a chain of entities which meet the conditions under Article 17(1) of the UAE CT Law and are treated as fiscally transparent.
- Corporate Tax Implications for Unincorporated partnerships
The Guidelines discuss the CT treatment of Family Foundations that are treated as an Unincorporated Partnership.
Personal investments and real estate income accruing to natural person beneficiaries would not typically be in scope of the UAE CT. Furthermore, such income may be exempt in the hands of the public benefit entity if the entity is itself exempt under the UAE CT Law, or if income-specific exemptions arise.
The Guidelines also discuss the treatment of deductible expenditures, beneficiary provided services and foreign tax credits.
- Compliance Obligations
The Guidelines lay out the compliance requirements for Family Foundations. Both Juridical persons applying for unincorporated partnership treatment and those automatically considered as unincorporated partnership need to register with the UAE FTA.
An annual confirmation must be submitted by juridical persons that are treated as unincorporated partnerships to demonstrate that they continue to meet the conditions of Article 17(1) of the UAE CT Law. Failure to meet the conditions for any tax period may result in the loss of the fiscally transparent treatment.
Key takeaway
Family Foundations and relevant stakeholders should carefully review the new Guidelines to assess whether their structures qualify for exemption or unincorporated partnership treatment and also ensure they understand and fulfil all related compliance and reporting obligations.