A family foundation is an entity such as a trust, foundation, or a similar nature body established to manage personal investment or wealth under the UAE applicable law. commercial, trade, or any such kind of business activity is not intended by such entities rather to hold, disburse, receive, invest, or otherwise manage funds or assets associated with investment and savings. A family foundation is not subject to corporate tax in the UAE, provided that it meets certain conditions and applies to the authority for special treatment. The corporate tax treatment to the family foundation and qualification for the tax exemption are given below.
How A Family Foundation Established Expanding Investment Management?
You can create a family foundation to help known or recognized natural people, such as your spouse, kids, grandchildren, and other relatives or friends. An educational institution, religious organization, social organization, charity, or any other non-profit that conducts public benefit activities can all benefit from the establishment of a family foundation. This is an additional option. An individual who serves as the family foundation's fiduciary, agent, or trustee, another natural person, or an independent third party.
How Can a Family Foundation Apply for Tax Exemption?
A family foundation may be classified as an unincorporated partnership to get exemption from corporate tax law, UAE upon request under Article 17 of FDL No. 47/2022 on the Taxation of Corporations and Businesses.
- A family foundation has to fulfill all of the requirements listed below in Explore Corporate Tax Law to be eligible for this treatment:
- The family foundation must be set up for the benefit of either a public benefit organization, named or identifiable natural individuals, or both.
- Receiving, holding, investing, disbursing, or managing assets or funds related to savings and investments must be the family foundation's primary function.
- The family foundation must not participate in activities that would constitute a taxable business or business activity under Article 11 (6) if carried out by the family foundation's founders, settlers, or beneficiaries.
If the authority approves the application, the family foundation's beneficiary(s) will be considered to own or benefit directly from the family foundation's operations and assets under corporation tax rules. This means that the family foundation's revenue will be taxed at the beneficiary's personal level, based on their respective tax rates and exemptions.
Why A Family Foundation Is Significant in Wealth Planning?
A family foundation can offer you several benefits, such as:
- Saving on corporate Tax: By applying for the special treatment, you can avoid paying corporate tax on the income of the family foundation and only pay personal tax on the income that you receive or benefit from as a beneficiary.
- Protecting your assets and wealth: A family foundation can provide you with a legal structure that can safeguard your assets and wealth from creditors, lawsuits, or other risks.
- Planning your succession: A family foundation can help you plan your succession and ensure that your assets and wealth are transferred to your chosen beneficiaries following your wishes and preferences.
- Supporting your cause: A family foundation can enable you to support your favorite cause and make a positive impact on society by donating to or sponsoring public benefit entities.
How To Set Up a Family Foundation?
If you are interested in setting up a family foundation in the UAE, you will need to follow the relevant procedures and requirements under the applicable legislation of the UAE.
What Constitutes a Family Foundation?
According to UAE corporate tax legislation, a "family foundation" is a legal body, such as a foundation or trust, established to protect and administer an individual's or family's assets and fortune. The main objective of a family foundation is to manage funds and assets by receiving, allocating, retaining, or investing for savings or investments concerning wealth planning for the interest of beneficiaries. It is pertinent to mention that family foundation does not mean business activities.
Whether Family Foundations Fall Within the Scope of Corporate Taxation UAE?
Family foundations, including certain types of trusts, have separate legal identities and are therefore subject to UAE Corporate Tax by default. Certain family foundations, on the other hand, may choose the "Transparent Unincorporated Partnerships" classification for UAE corporate tax purposes, which ensures that both the founder/settlor and the foundation's beneficiaries are regarded as owners of the foundation's assets. This normally exempts the foundation's income from UAE corporate tax. Other trust forms, such as those established in DIFC or ADGM, are contractual agreements between two or more entities (for example, the beneficiary, settlor, and trustee) and lack autonomous legal persons. These trusts are usually classified as transparent corporations for UAE corporate tax reasons.
How A Family Foundation Declared to Be An Unincorporated Partnership?
To avail of the tax-transparent treatment, a family foundation under corporate tax may adopt the way to be classified as an unincorporated partnership. The beneficiaries will be liable for the corporate tax liability after satisfying the conditions if a family foundation is not declared as a distinct taxable entity.
What conditions must a family foundation meet to be regarded by corporation taxes as an unincorporated partnership?
A family foundation seeking to be categorized as an unincorporated partnership under corporate tax regulations must fulfil the conditions outlined in Ministerial Decision No. 127 of 2023 and Article (17) of the corporation tax legislation. For an unincorporated partnership to be formally acknowledged, it must additionally apply to the Federal Tax Authority.
Can beneficiaries of a family foundation, recognized as an unincorporated partnership, join as partners immediately?
Indeed, when a family foundation is designated as an unincorporated partnership, its beneficiaries are regarded as partners within the unincorporated partnership structure, and they assume individual taxable person status for corporate tax purposes.
How are Natural Persons treated as Family Foundation Beneficiaries?
Individuals are directly responsible for UAE corporation tax since they are beneficiaries of family foundations that are categorized as unincorporated partnerships. Family foundation recipients who are categorized as unincorporated partnerships are personally liable for their corporation tax liabilities in the United Arab Emirates. Natural individuals conducting business in the United Arab Emirates must register for corporation tax and follow all applicable rules.
How are recipients of a family foundation treated if the foundation isn't listed as a qualifying public benefit organization in Cabinet Decision No. 37 of 2023?
Public benefit entities not meeting the criteria of qualifying public benefit entities, even if they are beneficiaries of a family foundation, are considered taxable persons under the provisions of the corporate tax law.
When a family foundation is an unincorporated partnership, is the income given to non-UAE beneficiaries subject to UAE corporate tax?
In case non-resident natural persons are beneficiaries of a foundation, the corporate tax will be applied on the income received from a family foundation as per Article (12) of UAE corporate tax read with cabinet decision No. 49 of 2023.
Mostafa is a seasoned Tax Consultant with over 5 years years of experience gained in diverse taxations matters. He has vast expertise in settling tax disputes with the Federal Tax Authority and handling of tax procedures in compliance with tax laws. He is adept in investigating underlying tax intricacies and offering expert tax advisory. He is also well-versed in conducting tax analysis’s and negotiations with the Tax Regulators, upon tax preparation and filing. Mostafa specializes in the areas of Tax law, Auditing, Accounting and Banking law.
