How Recent Tax Updates Affect Family Foundations in the UAE

Family foundations are quickly emerging as one of the UAE's most favored tools for wealth management. Individually established under law, these structures provide continuity, confidentiality and protection of assets. They also empower founders to plan with ease for generations ahead. However, with such flexibility comes much responsibility, especially when it pertains to tax law compliance.

In recent months, the UAE has unveiled a new set of guidelines to provide more clarity, and more transparency, on how family foundations are dealt with for tax purposes. The goal? To keep the UAE in line with international financial standards while still addressing the day-to-day requirements of local and international families.

A New Regulatory Framework that Enhances Transparency

Up until now, the tax status of foundation structures in the UAE was somewhat of a gray area. With corporate tax being effective at a headline rate of 9%, many families were left asking whether income from property or investments held in foundations would be subject to tax.

On paper, a foundation is a legal entity like a company. Thus, if it was earning income, for example from investment properties, it could potentially be considered a taxable business. Which, quite rightly, rang alarm bells among families who were using foundations solely as a means to hold and transfer private wealth, not with a commercial profit motive in mind.

Fortunately, the UAE government responded with a focused amendment to distinguish family foundations from regular corporate entities. Let's say a family foundation has some real estate property, which it leases to earn income. Under the new regulations, if the foundation is a family foundation and can prove that it's not operated for profit, it may be granted tax-exempt status as an unincorporated partnership. With the tax issue resolved, families can be confident that their wealth planning models are tax-efficient and legally valid.

Why This Matters

The introduction of tax transparency regulations for family foundations could not come at a better time. The UAE is drawing more ultra-high net worth individuals, and a large number are seeking to structure their wealth in a safe, forward-thinking way. As the global community intensifies its efforts to improve reporting standards and combat tax avoidance, the UAE is demonstrating its commitment to playing by the book while safeguarding legitimate private wealth.

The UAE Federal Tax Authority (FTA) has released a Corporate Tax Guide on the Taxation of Family Foundations in May 2025. This guide covers all the bases, including the qualification requirements, the corporate tax treatment and compliance obligations for a qualifying foundation and its beneficiaries. We've already done the reading, and the key takeaway is that individuals and families must be more meticulous than ever regarding how assets are structured, particularly where they span several jurisdictions.

The Ministry of Finance, for instance, has recently issued a Cabinet Decision regarding the tax treatment of unincorporated partnerships. The decision gives unincorporated partnerships the choice to be considered taxable persons, provided that they have received previous permission from the FTA. Unincorporated partnerships are generally considered as tax transparent entities under the Corporate Tax Law, which means that although the partnership is not taxed, each partner is liable to personal taxation on their separate income shares.

In other words, it's not always easy to find one's way in this new landscape. Though the recent changes provide welcome clarity, they also focus a spotlight on the need for planning and compliance. Each foundation is different, as are the goals and assets underlying it. Keeping your foundation in place for the long term and in good standing with both local and foreign regulators requires having a good team of advisors to consult. With the right advice, you can reap all the benefits of your family foundation without unnecessary logistical or legal tax complications.