Overview

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses was issued on 3 October 2022 and was published in Issue #737 of the Official Gazette of the United Arab Emirates ("UAE") on 10 October 2022. This Decree-Law together with its amendments is referred to as the "Corporate Tax Law".

The Corporate Tax Law provides the legislative basis for imposing a federal tax on corporations and Business profits ("Corporate Tax") in the UAE.

The provisions of the Corporate Tax Law shall apply to Tax Periods commencing on or after 1 June 2023.

Purpose of this guide

This guide is designed to provide general guidance on the taxation of Family Foundations. It provides readers with an overview of:

• The requirements to qualify as a fiscally transparent Family Foundation,

• A general understanding of how the Corporate Tax Law treats Family Foundations,

• Information about how the Corporate Tax Law applies to Family Foundations and their beneficiaries, and

• Information regarding the registration, compliance and other Corporate Tax obligations related to Family Foundations and their beneficiaries.

Who should read this guide?

The guide should be read by Persons involved in the establishment or management of Family Foundations, as well as their beneficiaries. It is intended to be read in conjunction with the Corporate Tax Law, the implementing decisions and other relevant guidance published by the FTA.

How to use this guide

The relevant articles of the Corporate Tax Law and the implementing decisions are indicated in each section of the guide.

It is recommended that the guide is read in its entirety to provide a complete understanding of the definitions and interactions of the different rules. Further guidance on some of the areas covered in this guide can be found in other topic- specific guides.

In some instances, simple examples are used to illustrate how key elements of the Corporate Tax Law apply to Family Foundations. The examples in the guide:

• Show how these elements operate in isolation and do not show all the possible interactions with other provisions of the Corporate Tax Law that may occur. They do not, and are not intended to, cover the full facts of the hypothetical scenarios used nor all aspects of the Corporate Tax regime, and should not be relied upon for legal or tax advice purposes, and

• Are only meant for providing the readers with general information on the subject matter of this guide. They are exclusively intended to explain the rules related to the subject matter of this guide and do not relate at all to the tax or legal position of any specific juridical or natural persons.

Legislative references

In this guide, the following legislation will be referred to as follows:

• Federal Law No. 5 of 2018 on WAQF (Endowment), is referred to as "Federal Law No. 5 of 2018",

• Federal Decree-Law No. 32 of 2021 on Commercial Companies, is referred to as "Federal Decree-Law No. 32 of 2021",

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, and its amendments, is referred to as "Corporate Tax Law",

• Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law, is referred to as "Federal Decree-Law No. 50 of 2022",

• Federal Decree-Law No. 31 of 2023 Concerning Trust, is referred to as "Federal Decree-Law No. 31 of 2023",

• Cabinet Decision No. 37 of 2023 on the Qualifying Public Benefit Entities for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is referred to as "Cabinet Decision No. 37 of 2023",

• Cabinet Decision No. 49 of 2023 on Specifying the Categories of Businesses or Business Activities Conducted by a Resident or Non-Resident Natural Person that are Subject to Corporate Tax, is referred to as "Cabinet Decision No. 49 of 2023",

• Ministerial Decision No. 261 of 2024 on Unincorporated Partnership, Foreign Partnership and Family Foundation for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is referred to as "Ministerial Decision No. 261 of 2024",

• Ministerial Decision No. 301 of 2024 on Tax Group for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is referred to as "Ministerial Decision No. 301 of 2024",

• Ministerial Decision No. 302 of 2024 on the Participation Exemption for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is referred to as "Ministerial Decision No. 302 of 2024",

• Federal Tax Authority Decision No. 7 of 2023 on Provisions of Exemption from Corporate Tax for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is referred to as "FTA Decision No. 7 of 2023",

• Federal Tax Authority Decision No. 16 of 2023 on Determining the Requirements for the Registration of the Unincorporated Partnership and Determining the Distributive Shares of Partners in an Unincorporated Partnership for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments, is referred to as "FTA Decision No. 16 of 2023",

• Federal Tax Authority Decision No. 3 of 2024 on the Timeline specified for Registration of Taxable Persons for Corporate Tax for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments, is referred as "FTA Decision No. 3 of 2024",

• Federal Tax Authority Decision No. 5 of 2025 on Determining the Tax Compliance Requirements for Unincorporated Partnerships and Foreign Partnerships and Family Foundations for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments is referred to as "FTA Decision No. 5 of 2025",

• ADGM Foundations Regulations 2017 (Consolidated Version January 2025) is referred to as "ADGM Foundations Regulations 2017",

• Foundations Law DIFC Law No. 3 of 2018 (Consolidated Version March 2024) is referred to as "DIFC Law No. 3 of 2018",

• Operating Law – DIFC Law No. 7 of 2018 (Consolidated Version March 2024) is referred to as "DIFC Law No. 7 of 2018", and

• RAK ICC Foundations Regulations 2019 is referred to as "RAK ICC Foundations Regulations 2019".

Status of this guide

This guidance is not a legally binding document, but is intended to provide assistance in understanding the tax implications of the Corporate Tax regime for Family Foundations. The information provided in this guide should not be interpreted as legal or tax advice. It is not meant to be comprehensive and does not provide a definitive answer in every case. It is based on the legislation as it stood when the guide was published. Each Person's own specific circumstances should be considered.

The Corporate Tax Law, the implementing decisions and the guidance materials referred to in this document will set out the principles and rules that govern the application of Corporate Tax in the UAE. Nothing in this publication modifies or is intended to modify the requirements of any legislation.

This document is subject to change without notice.

Overview

The term "Family Foundation", as understood within the context of the Corporate Tax Law, is not an entity type that is recognised explicitly in the general legal framework of the UAE. A Family Foundation is a concept for Corporate Tax purposes and is best understood as an entity that families may use for managing and preserving wealth across generations. A Family Foundation is defined in the Corporate Tax Law as any foundation, trust or similar entity that meets the conditions of Article 17(1) of the Corporate Tax Law.^[1] Thus, there are two criteria to consider:

• First, being a foundation, trust or similar entity, and

• Second, meeting the conditions of Article 17(1) of the Corporate Tax Law (see Section 5).

The first criterion, i.e. being a foundation, a trust or a similar entity, relies on the relevant (non-tax) legislation (see Sections 3.2 and 3.3), while the second criterion is determined by the Corporate Tax Law.^[2] As a result, the determination of Family Foundation status requires consideration of other relevant legislation as well as the Corporate Tax Law.

There is no requirement for a Family Foundation to be an entity formed in the UAE. Hence, it is possible for a foreign (i.e. non-UAE) entity to meet the conditions to be a Family Foundation, as set out in Article 17(1) of the Corporate Tax Law.

A number of different structures are used to manage personal wealth and investments for asset protection, succession, philanthropic and other reasons. These include, for example, a contractual trust, or a foundation. Some common entities are considered below. The instances in Sections 3.2 to 3.5 are drawn from the UAE, but note that this does not preclude a foreign entity from being a foundation, trust or similar entity.

Where the entity has a separate legal personality (i.e. distinct from its beneficiaries), it will be a juridical person and so it would, in the first instance, be subject to Corporate Tax in its own right (see Section 4). However, an application to be treated as fiscally transparent may be made to the FTA where the relevant conditions are met (see Section 5).^[3]

Where an entity does not have a separate legal personality, it is, by default, treated for Corporate Tax purposes as an Unincorporated Partnership, that is fiscally transparent, without the need to make an application.

Foundations

The expression "foundation" can be found in various pieces of legislation in the UAE. For example (a non-exhaustive list), foundations can be established under the legislation of Free Zones such as Dubai International Finance Centre ("DIFC"),^[4] Abu Dhabi Global Market ("ADGM"),^[5] or RAK International Corporate Centre ("RAK ICC").^[6] They may be used, for example, to benefit persons by name, category or class,^[7] or to manage and distribute the foundation assets and income in accordance with its charter.^[8]

Foundations formed outside the UAE that operate in Free Zones and which have satisfied the necessary requirements of the Free Zones may also be recognised as foundations in the respective Free Zones. For example, where such a foundation operates in the DIFC, the relevant Free Zone legislation applies to it as if it had been established under the Free Zone legislation.^[9]

Foundations typically may not carry out any commercial activities, except those necessary for, and ancillary or incidental to, the objectives of the foundation consistent with the legislation under which they are formed.

Generally, foundations do not hold commercial licences because, as mentioned above, they may not carry out commercial activities. For example, a foundation registered in DIFC, in accordance with DIFC Law No. 3 of 2018, is issued an operating licence as per DIFC Law No. 7 of 2018.^[10] This licence is defined in the DIFC Operating Regulations as "a licence issued by the registrar to a registered person which does not carry out or propose to carry out commercial activities in or from DIFC". The existence of such a licence would not cause a foundation to fail the principal activity condition (see Section 5.2) or the no Business Activity condition (see Section 5.3).

Where a Family Foundation has a separate legal personality, it is a juridical person for Corporate Tax purposes, and so, in the first instance, would be subject to Corporate Tax in its own right. Therefore, an application can be made to the FTA for the entity be treated as fiscally transparent (see Section 8.2) where the relevant conditions are met (see Section 5).

Trusts

A trust is a legal arrangement where a settlor, who may be a natural person or a juridical person, transfers assets to either the trust or to a trustee, for the benefit of the beneficiaries. The trustee manages the assets for the benefit of the beneficiaries, for which the trustee may receive a fee. A trust deed normally governs the trust's terms, beneficiaries, trustee's powers, and other details.

Similar entities

The definition of Family Foundation includes a "similar entity" to foundations or trusts. 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 (see Section 5).

Entities wholly owned and controlled by a Family Foundation

A Family Foundation may hold ownership of one or more juridical persons. A juridical person which is not a foundation, trust or similar entity (i.e. under the definition of Family Foundation under Article 1 of the Corporate Law) may nonetheless apply to be treated as fiscally transparent under the Corporate Tax Law if it is wholly owned and controlled by a Family Foundation that is treated as an Unincorporated Partnership and meets other conditions (see Section 6).^[15] Examples of such juridical persons include limited liability companies (LLCs) and other types of special purpose vehicles (SPVs) established under the Commercial Companies Law, and other relevant UAE legislation.

Entities wholly owned and controlled by a Family Foundation cannot apply to be treated as fiscally transparent if they conduct commercial activities (see Section 5.3).

Persons subject to Corporate Tax

In the UAE, a Taxable Person is either a Resident Person or a Non-Resident Person.^[16] A Resident Person or Non-Resident Person may be either a juridical person or a natural person.

A juridical person is a Resident Person if it is incorporated or otherwise established under the applicable legislation of the UAE, including in a Free Zone, or if it is incorporated/established in a foreign jurisdiction but effectively managed and controlled in the UAE.^[17]

A juridical person is a Non-Resident Person if it is not a Resident Person and:^[18]

• Has a Permanent Establishment in the UAE, or

• Derives State Sourced Income, or

• Has a nexus in the UAE

A natural person is a Resident Person if he or she conducts a Business or a Business Activity in the UAE with a total Turnover exceeding AED 1 million in a Gregorian calendar year. Turnover derived from Wages, Personal Investment income and Real Estate Investment income is not considered to be derived from a Business or Business Activity for natural persons (see Section 4.3). ^[19] A natural person may conduct a Business or a Business Activity through a sole establishment or an Unincorporated Partnership which is fiscally transparent for Corporate Tax purposes.^[20]

A natural person is a Non-Resident Person if he or she has a Permanent Establishment in the UAE or if he or she derives State Sourced Income.^[21]

Distinguishing between a juridical person and a natural person, and between a Resident Person and a Non-Resident Person, is relevant to the way the Corporate Tax Law operates.

Exempt Persons

The Corporate Tax Law exempts particular Persons from Corporate Tax. The categories of Exempt Persons are listed in Article 4 of the Corporate Tax Law and include, among others, a Qualifying Public Benefit Entity.^[22]

The relevance for a Family Foundation situation is that where a beneficiary is a Qualifying Public Benefit Entity, the beneficiary, as an Exempt Person, is not subject to Corporate Tax on any income from the Family Foundation.^[23]

Certain income of natural persons not subject to Corporate Tax

As mentioned in Section 4.1, for natural persons, Turnover derived from Wages, Personal Investment income and Real Estate Investment income is not considered to be derived from a Business or Business Activity and, therefore, does not fall within the scope of Corporate Tax.^[24]

• Wage refers to cash or payment in kind given to an employee in consideration of their services under an employment contract.^[25]

• Personal Investment income arises from an investment activity that a natural person conducts for their personal account that is neither conducted through a Licence, or requiring a Licence from a Licensing Authority, nor considered as a commercial business in accordance with the Commercial Transactions Law.^[26]

• Real Estate Investment income arises from an investment activity conducted by a natural person related to, directly or indirectly, the sale, leasing, sub-leasing, and renting of land or real estate property in the UAE that is not conducted, or does not require to be conducted, through a Licence from a Licensing Authority.^[27]

Where a natural person conducts a Business or Business Activity in the UAE that falls within the scope of Corporate Tax, that natural person will only have to register for Corporate Tax if his or her total Turnover from such Business or Business Activity exceeds AED 1 million in a Gregorian calendar year.^[28]

Family Foundations under the Corporate Tax Law

A foundation, a trust or similar entity that is a juridical person may be subject to Corporate Tax in its own right like any other juridical person. If, however, the entity meets the conditions specified in Article 17(1) of the Corporate Tax Law, it will be a Family Foundation. It can then apply to the FTA to be treated as an Unincorporated Partnership for Corporate Tax purposes.^[29] If the application is approved, the Family Foundation will be treated as a fiscally transparent Unincorporated Partnership. In that case, it will not be subject to Corporate Tax in its own right and will be treated as transparent for Corporate Tax purposes. However, the compliance requirements or relevant applications available for Unincorporated Partnerships under Article 16 of the Corporate Tax Law on a standalone basis will not apply to such Family Foundations (for example, applying to be a Taxable Person or registering as an Unincorporated Partnership).^[30]

A trust or similar association of Persons that is established by contract but is not incorporated is treated as an Unincorporated Partnership (according to Article 1 of the Corporate Tax Law). As such, it is treated as fiscally transparent by default and, therefore, an application to the FTA to be treated as an Unincorporated Partnership is not required. If a fiscally transparent entity meets the conditions in Article 17(1) of the Corporate Tax Law, it will automatically be regarded as a Family Foundation (i.e. there are no administrative requirements to confirm its status and an application for a fiscally transparent status is not needed). The Family Foundation status is relevant to the ability of juridical persons under the entity in a multi-tier structure to be treated as fiscally transparent (see Section 6).

Beneficiary condition

Beneficiaries of the foundation, trust or similar entity can be:

• Identified or identifiable natural persons, and/or

• A public benefit entity. ^[37]

Beneficiaries are not only the direct/immediate beneficiaries of the foundation, trust or similar entity, but also indirect beneficiaries, that is to say through one or more other entities which are fiscally transparent for Corporate Tax purposes.

An "identified" natural person is someone who is a named beneficiary in the charter, by-laws or any other official documentation of the foundation, trust or similar entity.

An "identifiable" natural person is someone who is not specifically named but who is included in a class of natural person beneficiaries, for example, a child or grandchild of the settlor. Such persons may be unborn at the time the foundation, trust or similar entity is established.

A "public benefit entity" is not specifically defined and, therefore, takes its ordinary meaning. It does not need to be a Qualifying Public Benefit Entity under the Corporate Tax Law. A Qualifying Public Benefit Entity would, however, be a public benefit entity. 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 organisation, established either in the UAE or another jurisdiction, is likely to be a public benefit entity.

There is no minimum or maximum number of beneficiaries for a Family Foundation prescribed by the Corporate Tax Law. Furthermore, there are no requirements or restrictions regarding the relationship of the beneficiaries, for instance, the natural person beneficiaries are not required to be from the same family.

Principal activity condition

To meet this condition, the principal activity of the foundation, trust or similar entity must be to receive, hold, invest, disburse, or otherwise manage assets or funds associated with savings and investments.^[38] This may include purchasing and selling stocks, bonds, real estate, or other assets, intended to grow the value of the assets and/or generate an income stream for the beneficiaries.

The foundation, trust or similar entity may also disburse funds for specific purposes, such as supporting beneficiaries, funding charitable activities, or covering operational expenses in accordance with the objectives and legal obligations. For example, fees may be paid to an investment manager or a family office that manages the assets of the foundation, trust or similar entity.

No Business Activity condition

The foundation, trust or similar entity must not conduct an activity that would have constituted a Business or Business Activity if undertaken by a natural person.^[39] This is to ensure that a foundation, trust or similar entity is used for its intended purpose of managing investments and not to conduct a Business or Business Activity on a commercial basis.

As mentioned in Section 4.3, in respect of a natural person, Turnover derived from Wages, Personal Investment income and Real Estate Investment income is not considered to be derived from a Business or Business Activity. The foundation, trust or similar entity may, therefore, undertake an activity that would be considered Personal Investment and/or Real Estate Investment had it been undertaken by the natural person beneficiaries directly (see Section 4.3 for the definition of Personal Investment and Real Estate Investment activity.)

No tax avoidance condition

The main or principal purpose of a Family Foundation should not be for the avoidance of Corporate Tax.^[40]

This condition will be met where a Family Foundation is used for the purposes envisaged by the Corporate Tax Law, namely to receive, hold, invest, disburse or/and manage assets for the benefit of individuals or charitable organisations.

Making an application to be treated as an Unincorporated Partnership and thereby permitting income to be excluded from Corporate Tax (as set out in Section 7) would not in itself be seen as a tax avoidance purpose.

Distribution condition where beneficiaries include public benefit entities

Where one or more of the beneficiaries of the foundation, trust or similar entity are public benefit entities, the foundation, trust or similar entity must meet any of the following additional conditions:^[41]

1. 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

2. 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.

Condition (a) above would be met where either:

• All the income derived by a beneficiary that is a public benefit entity is Exempt Income, or

• The public benefit entity is a Qualifying Public Benefit Entity.

Exempt Income is defined in Article 22 of the Corporate Tax Law and includes, for example, Dividends from a juridical person that is a Resident Person, and income from a Participating Interest in a foreign juridical person.

A Qualifying Public Benefit Entity is an entity that meets the conditions set out in Article 9 of the Corporate Tax Law and is listed in Cabinet Decision No. 37 of 2023.

Where condition (a) above is not met, condition (b) above must be met in order for the foundation, trust or similar entity to be treated as an Unincorporated Partnership.

Example 2: Family Foundation receiving Taxable Income

A Family Foundation meets the conditions of Article 17(1) of the Corporate Tax Law and is recognised as an Unincorporated Partnership, which means it is treated as fiscally transparent for Corporate Tax purposes. It follows the Gregorian calendar year as its Tax Period and has two types of beneficiaries: family members (i.e. natural persons) and a charitable entity that is a public benefit entity (which is not a Qualifying Public Benefit Entity).

In February 2025, the Family Foundation buys a 10% shareholding of a foreign company. In October 2025, the Family Foundation sells a 7% shareholding of the foreign company, at a gain. As the shares were not held for an uninterrupted period of 12 months, the Participation Exemption would not apply to the realised gain (for more information see the Corporate Tax Guide on Exempt Income: Dividends and Participation Exemption). The income received would, therefore, be Taxable Income if derived directly by the charitable entity. Accordingly, the first distribution condition (under Article 5(1)(a) of Ministerial Decision No. 261 of 2024 ) is not met.

To meet the second distribution condition (under Article 5(1)(b) of Ministerial Decision No. 261 of 2024), the Family Foundation is required to distribute the proportion of the income derived from the sale of the 7% shareholding of the foreign company that belongs to the charitable entity by 30 June 2026, i.e. within 6 months from the end of its Tax Period i.e. 31 December 2025. There is no requirement for the Family Foundation to distribute the proportion of the income that belongs to the family members to those members.

Foreign entities and Family Foundations

It is possible for a foreign entity that is a foundation, trust or similar entity to be a Family Foundation as long as all the conditions of Article 17(1) of the Corporate Tax Law are satisfied.

The following examples consider different scenarios involving foreign entities.

Example 3: Foreign entity that has a nexus in the UAE

A foreign foundation, a juridical person, is established outside the UAE to hold and manage the UAE real estate assets of a UAE family. The beneficiaries are the members of the UAE family and the foreign charity.

The foreign foundation has a nexus in the UAE and is considered a Taxable Person in its own right (i.e. a Non-Resident Person with a nexus in the UAE) and is required to register for Corporate Tax.^[42]

If the foreign foundation meets all the conditions of Article 17(1) of the Corporate Tax Law, it can be considered a Family Foundation and can, therefore, apply to be treated as a fiscally transparent Unincorporated Partnership for Corporate Tax purposes. If the application is approved by the FTA, the Corporate Tax position will be as follows:

• The foreign foundation, as a fiscally transparent Unincorporated Partnership, will not be a Taxable Person in its own right.

• The UAE family members will not be subject to Corporate Tax on the income generated by the Family Foundation as the income will meet the definition of Real Estate Investment income.

• The foreign charity will be considered a Non-Resident Person with a nexus in the UAE (as it derives income from Immovable Property), and will, therefore, be subject to Corporate Tax on its distributive share of the income from the Immovable Properties in the UAE.

Example 4: Foreign foundation that has a nexus in the UAE

Family X resides in a Gulf Cooperation Council ("GCC") country outside the UAE. The family establishes a foundation, Foundation X, in that GCC country to hold and manage UAE Immovable Property for Family X as beneficiaries. Foundation X earns rental income from the UAE properties. No Licence from the relevant UAE Licensing Authority is required to rent out the Immovable Property.

Foundation X does not maintain any physical presence such as employees or office space in the UAE. Instead, it hires an unrelated Company Y, a real estate management company in the UAE, to source tenants, register tenancy contracts and collect the rent from tenants for a fee.

Foundation X is considered to have a nexus in the UAE by virtue of deriving income from Immovable Property in the UAE. It will be subject to Corporate Tax as a Non- Resident Person on this income and so is required to register with the FTA for Corporate Tax purposes. However, if it meets all the conditions of Article 17(1) of the Corporate Tax Law, it may apply to be treated as an Unincorporated Partnership. If the FTA approves the application, the Corporate Tax position will be as follows:

• Foundation X will be treated as fiscally transparent. As a result, it will no longer be subject to Corporate Tax in its own right. Instead, the Corporate Tax liability will be assessed at the level of the beneficiaries.

• The members of Family X will not be subject to Corporate Tax in respect of the rental income derived by Foundation X as the income will meet the definition of Real Estate Investment income (see Section 4.3).

• The family members will not be subject to Corporate Tax on any distributions received from the Family Foundation.

• The Corporate Tax treatment of Company Y is unchanged.

Family Foundation

Where a Family Foundation is treated as an Unincorporated Partnership, it is considered fiscally transparent and hence not subject to Corporate Tax in its own right. Therefore, the beneficiaries will be deemed to be partners in an Unincorporated Partnership and, for Corporate Tax purposes, each beneficiary is treated as:^[49]

• Conducting the activity of the Family Foundation,^[50]

• Having the status, intention and purpose of the Family Foundation,

• Holding assets that the Family Foundation holds, and

• Being party to any arrangement to which the Family Foundation is a party.

For Corporate Tax purposes, the assets, liabilities, income and expenditure of the Family Foundation will be allocated to each beneficiary in proportion to their distributive share (i.e. the beneficial interest) for each relevant Tax Period. This applies even if a trustee has legal ownership of the trust assets, for instance, in an unincorporated trust. The Corporate Tax treatment will then be assessed at the level of each beneficiary, in accordance with the general rules for determining Taxable Income under the Corporate Tax Law. Accordingly, the relevant entities in such structures should provide each beneficiary with sufficient information in relation to their Corporate Tax obligations for each relevant Tax Period.

For practical purposes, this allocation is only required where any of the beneficiaries will be subject to Corporate Tax on the income generated by the Family Foundation, such as public benefit entities which are not exempt from Corporate Tax as Qualifying Public Benefit Entities.

Natural person beneficiary

Any beneficiary who is a natural person will not be subject to Corporate Tax on their distributive share of income from the Family Foundation on the basis that such income would either be considered Personal Investment income or Real Estate Investment income (see Section 4.3).

Public benefit entity beneficiary

Where the beneficiary is, and remains, a Qualifying Public Benefit Entity, it will not be subject to Corporate Tax as it is an Exempt Person.

However, any beneficiary that is a public benefit entity which is, or becomes, a Taxable Person will include its distributive share of the Family Foundation's income and expenditure in its Taxable Income. A beneficiary that is a foreign public benefit entity which was not already a Taxable Person may become subject to Corporate Tax as a Non-Resident Person as a result of the Family Foundation being fiscally transparent, for example, by virtue of having a nexus in the UAE (see Section 5.6).

The public benefit entity beneficiaries that are subject to Corporate Tax must assess the Corporate Tax treatment of the relevant income and expenditure following the general rules as per Article 20 of the Corporate Tax Law. Examples of the applicable Corporate Tax treatment of certain types of income and expenditure are provided in the subsequent sections.

Deductible expenditure

The Taxable Income, if any, of the beneficiaries must take into account their distributive share of expenditure incurred by the Family Foundation in relation to that income. There are specific rules that restrict or disallow the deductibility of certain types of expenditure for Corporate Tax purposes.^[54]

In some cases, the Family Foundation may incur expenses on behalf of the beneficiary. Such expenses may then be reimbursed in whole or in part by the beneficiary. If any expenses have been reimbursed, the cost incurred would be set off against the reimbursement income received and no adjustments will be required for Corporate Tax purposes. Equally the beneficiary may incur expenses on behalf of the Family Foundation, and if these are reimbursed in line with the above, there will be no adjustments required for Corporate Tax purposes. For further information on the reimbursement of expenditure and the implications for partners, i.e. beneficiaries, see the Corporate Tax Guide on the Taxation of Partnerships.

Payment to beneficiaries for services provided to a Family Foundation

If a beneficiary renders services to the Family Foundation not in their capacity as a beneficiary (or employee), but as a service provider, where such services are wholly and exclusively conducted for the purposes of the Family Foundation's activities, and the payment for such services is at arm's length, the payment for services will be deductible while determining the Taxable Income of the taxable beneficiaries to the extent of their distributive share.

The Corporate Tax treatment of any income received by a beneficiary for the services rendered to the Family Foundation will be assessed separately by the relevant beneficiary and is not covered in this guide.

Foreign Tax Credit

A fiscally transparent Family Foundation may receive foreign source income which is subject to tax in that foreign jurisdiction. Where the income passes through to the beneficiaries that are subject to Corporate Tax on such income, the beneficiary may be able to claim a Foreign Tax Credit in proportion to its distributive share of income in the Family Foundation.

Distribution by a Family Foundation to its beneficiaries

For Corporate Tax purposes, the Family Foundation is required to distribute the income to any beneficiary that is a public benefit entity within 6 months of the end of the Tax Period in which the income was derived by the Family Foundation, if the income is not Exempt Income or the public benefit entity is not an exempt Qualifying Public Benefit Entity (see Section 5.5).^[55]

A distribution by a Family Foundation is disregarded for Corporate Tax purposes when the underlying income has been included in the beneficiary's Taxable Income, where relevant.

Example 11: Application of the Participation Exemption at the beneficiary level and the treatment of distributions

Ms P, Mr Q, and public benefit entity R, are beneficiaries of Foundation S, a juridical person that is a Family Foundation which has made an application and received approval from the FTA to be treated as an Unincorporated Partnership (i.e. to be treated as fiscally transparent). The foundation's primary objective is to hold assets.

All three beneficiaries have an equal beneficial interest in Foundation S.

Foundation S holds a 15% stake in Company T (a company incorporated in and a tax resident of Country T) on behalf of the beneficiaries. After holding the shares for more than 12 months, Foundation S receives Dividends from Company T. One year later, it sells the shares in Company T at a gain. If the shares in Company T were held directly by Ms P and Mr Q, the income would be Personal Investment income (see Section 4.3).

For Corporate Tax purposes, Foundation S should allocate its income and expenditure to the beneficiaries in proportion to their distributive share.

Distribution condition for Foundation S

The public benefit entity, assuming it is not an Exempt Person, has one-third (⅓) of the income, expenditure, assets and liabilities of the Family Foundation allocated to it. As Foundation S holds 15% of Company T, the public benefit entity is treated as holding 5% of Company T, thus meeting one of the requirements for the Participation Exemption. If the other relevant Participation Exemption conditions are met, public benefit entity R can exclude its share of Dividends and capital gains in respect of Company T from its Taxable Income. For more information see the Corporate Tax Guide on Exempt Income: Dividends and Participation Exemption.

If the other conditions of the Participation Exemption are not met, those Dividends and capital gains will be Taxable Income. In such a case, Foundation S should distribute to public benefit entity R its share of the income within 6 months from the end of the relevant Tax Period, otherwise the distribution condition is not met, and Foundation S will cease to be treated as an Unincorporated Partnership (see Section 8.3).

Corporate Tax treatment for Ms P and Mr Q

If the distribution condition is met and Foundation S continues to be treated as an Unincorporated Partnership, Ms P and Mr Q will not be subject to Corporate Tax on their share of the Dividends and capital gains because the income is Personal Investment income which is excluded from Corporate Tax for natural persons.

If the distribution condition is not met and Foundation S is no longer treated as an Unincorporated Partnership, Foundation S will be subject to Corporate Tax in its own right. Amongst other matters, Foundation S would need to determine whether the Participation Exemption applied to its income. Regardless, for Ms P and Mr Q the income from Foundation S, i.e. Dividends, would be excluded from Corporate Tax as Personal Investment income.

Registration for Corporate Tax purposes

A juridical person that is a Family Foundation or is wholly owned and controlled by a Family Foundation and that wishes to apply to be treated as an Unincorporated Partnership, i.e. fiscally transparent, will first need to register for Corporate Tax purposes. Each juridical person in a multi-tier structure (see Section 6) should be registered separately for Corporate Tax before it applies to be treated as fiscally transparent. For more information see the Corporate Tax Guide on Registration of Juridical Persons.

Where an application to be treated as a fiscally transparent Unincorporated Partnership is approved by the FTA, the entity will not be subject to Corporate Tax in its own right.

A Family Foundation that is by default treated as an Unincorporated Partnership is also required to register for Corporate Tax purposes. For more information see the Corporate Tax Guide on the Taxation of Partnerships.

Natural persons that are beneficiaries of a Family Foundation that is fiscally transparent are not required to register for Corporate Tax, unless they conduct a separate Business or Business Activities in the UAE and the total Turnover for those activities exceeds AED 1 million in a Gregorian Calendar year.

Beneficiaries of a Family Foundation that are public benefit entities are required to register for Corporate Tax if they are considered Taxable Persons, regardless of their interest in a Family Foundation. This includes Qualifying Public Benefit Entities.^[56] For more information see the Corporate Tax Guide on Registration of Juridical Persons.

Application to be treated as an Unincorporated Partnership

Where all the conditions set out in Section 5 are met, a juridical person which is a Family Foundation may make an application to the FTA to be treated as an Unincorporated Partnership. It must make the application to the FTA before the end of the relevant Tax Period. For applications made on or before 31 December 2025, the application can be effective from the commencement of any Tax Periods ending on or before 31 December 2025 as stipulated in the application.^[57]

As part of the application, the Family Foundation should provide the relevant information including details of the beneficiaries and confirmation that the Family Foundation meets the relevant conditions.

The Family Foundation must indicate the relevant Tax Period for which the application is made. This can be one of the following:^[58]

• The current Tax Period during which the application is submitted.

• The next Tax Period following the Tax Period during which the application is submitted.

If the application is approved, the Family Foundation will be treated as a tax transparent Unincorporated Partnership and the beneficiaries would be seen 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.^[59]

Annual Confirmation of the Family Foundation

For the purposes of monitoring the continued compliance by a Family Foundation with the conditions of Article 17(1) of the Corporate Tax Law, the FTA requires the Family Foundation (or a juridical person wholly owned and controlled by a Family Foundation) which has made an application to be treated as an Unincorporated Partnership, to file an annual confirmation within 9 months from the end of the relevant Tax Period.^[62] The deadline to file an annual confirmation shall be 31 December 2025 for any Tax Periods that ended on or before 31 March 2025.^[63]

Failure to continue meeting the conditions

If a Family Foundation has applied to be treated as an Unincorporated Partnership and such application has been approved by the FTA, however, subsequently the Family Foundation fails to meet any of the conditions under Article 17(1) of the Corporate Tax Law, then it will lose its fiscally transparent status and revert to being a Taxable Person for Corporate Tax purposes from the beginning of the Tax Period in which such failure occurred.

Where an entity in a multi-tier structure (see Section 6) ceases to meet the conditions, any entities it holds directly or indirectly will also cease to be eligible to be treated as fiscally transparent under the Family Foundation provisions.