Corporate Tax for Family Foundations

Introduction

With the enforcement of the UAE’s Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, many families with wealth structures such as family foundations or private foundations are asking a critical question:

“Are Family Foundations subject to UAE Corporate Tax?”

It provides clarity on the tax treatment of family foundations, the conditions for exemption, and the steps needed to ensure compliance.

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🧾 What is a Family Foundation?

A family foundation is a legal entity established to manage and protect family assets across generations. It is often used for:

• Succession planning

• Holding family investments

• Managing real estate or private businesses

• Ensuring wealth preservation and philanthropic goals

Family foundations are commonly registered in free zones such as DIFC, ADGM, or RAK ICC under specific foundation regulations.

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⚖️ Corporate Tax Treatment of Family Foundations

Under Article 9 of the UAE Corporate Tax Law, foundations, trusts, and similar vehicles are generally subject to Corporate Tax if they qualify as juridical persons carrying on a business activity in the UAE.

However, they may be treated as transparent or apply for exemption under certain conditions.

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✅ 1. Foundation Treated as a Taxable Juridical Person

If a family foundation:

• Owns shares in businesses

• Earns UAE-source income

• Conducts commercial activities (e.g., property leasing, service provision)

Then it will be considered a taxable resident person and must:

• Register for Corporate Tax

• File annual CT returns

• Pay 9% CT on taxable income over AED 375,000

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✅ 2. Foundation Treated as a Fiscally Transparent Entity

If the foundation meets conditions in Ministerial Decision No. 127 of 2023, it can apply to be treated as transparent, meaning:

• The founder or beneficiaries are treated as conducting the activities directly

• Income is taxed in the hands of those individuals/entities

Application must be made to the FTA with supporting documents.

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✅ 3. Applying for Corporate Tax Exemption (Article 9)

A Family Foundation may apply to be treated as an Exempt Person if:

• It is established exclusively for wealth/estate planning for the benefit of natural persons

• The foundation does not conduct any business or commercial activity

• All income is passively derived (e.g., dividends, interest, capital gains, rental from personal assets)

• It distributes income only to qualifying beneficiaries

• It complies with record-keeping and reporting requirements as prescribed

Application for exemption must be submitted to the Federal Tax Authority (FTA) along with required documentation.

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📋 Comparison Table

Type of Foundation CT Status Conditions

Commercial Foundation (runs business) ✅ Taxable Person Must register and file returns

Passive Foundation with exemption ❌ Exempt Person (if approved) Apply under Article 9 with conditions met

Transparent Foundation (elective) ✅ Partners/beneficiaries taxed Must apply for transparent treatment

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🔍 Key Conditions for Exemption (as per Article 9)

To be exempt, the Family Foundation must:

1. Be established under UAE law as a foundation or similar vehicle

2. Be wholly owned and controlled by natural persons

3. Operate exclusively for wealth preservation, estate planning, or charitable purposes

4. Not conduct commercial activities or own non-passive income-generating assets

5. Distribute income only to natural persons, not businesses

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🛡️ Tax Planning Tips for Family Foundations

• ✅ Segregate commercial assets from private family holdings

• ✅ Consider using holding companies for active business ownership

• ✅ Maintain clear records of income types and beneficiaries

• ✅ Review compliance with exemption criteria annually

• ✅ Seek professional advice before applying for exemption or transparency

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🧠 Example Scenarios

📌 Scenario 1: Passive Foundation

• Holds shares in UAE and global companies

• Receives only dividends and interest

• No employees or operations

• Distributes income to family members

✅ Can apply for exemption under Article 9

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📌 Scenario 2: Operational Foundation

• Owns a hotel or trading company

• Employs staff and earns revenue

• Pays family members as directors

❌ Not eligible for exemption; must register and pay Corporate Tax

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🧾 Required Documents for Exemption Application

• Foundation charter and registration documents

• List of founders and beneficiaries

• Statement of purpose and activities

• Financial statements showing passive income

• Board minutes or resolutions

• Any other documents required by the FTA

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🧠 How Sheikh Anwar Accounting & Auditing LLC Can Help

We help families and foundations:

✅ Assess eligibility for exemption or transparency

✅ Prepare and submit exemption applications

✅ Structure assets to remain compliant with UAE CT laws

✅ Maintain proper financial records and documentation

✅ Handle registration, return filing, and compliance with the FTA

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📞 Contact Us

📍 Sheikh Anwar Accounting & Auditing LLC

🌐 www.sa-auditors.com

📧 info@sa-auditors.com

📞 +971-XX-XXX-XXXX