UAE - FTA issues updated Guide on Taxation of Family Foundations

Overview

The Federal Tax Authority (FTA) in the United Arab Emirates (UAE) has issued an updated Guide on Taxation of Family Foundations. The updates include legislative references that were issued after the previous guide, clarifications and additional guidance that are particularly relevant for family foundation structures holding UAE real estate, investment Special Purpose Vehicles (SPVs), and Family Offices.

Key updates

1. 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. The updated guide clarifies that a Limited Liability Company (LLC) is not considered to be a “similar entity” and, therefore, cannot make an application to the FTA to be treated as fiscally transparent unless it is wholly owned and controlled by Family Foundation and satisfy the prescribed conditions.
2. It is clarified that where the Family Foundation meets the beneficiary condition, the juridical person that is wholly owned and controlled by a Family Foundation would also be considered to meet the condition on the basis that the juridical persons wholly owned and controlled serve the same holistic purpose as the Family Foundation.
3. Through example 9 included in the previous guide, a juridical person was not considered to be fiscally transparent if owned by more than one Family Foundation, with ultimate beneficiary remaining the same. This, however, is revised in the new guide, and clarified that juridical person which is wholly owned and controlled by one or more Family Foundations, with ultimate beneficiary remaining the same and on the basis that it also meets the conditions of Article 17(1) of the UAE Corporate Tax Law can make an application to the FTA to be treated as an Unincorporated Partnership.
4. As per Article 5 of Ministerial Decision No. 261 of 2024, where one or more of the beneficiaries of a Family Foundation are public benefit entities, the Family Foundation must, inter-alia, distribute the taxable income to the relevant beneficiaries within (6) six months from the end of the relevant Tax Period. In case the beneficiaries of the Family Foundation include individual members along with public benefit entities, the updated guide clarifies that the Family Foundation is not required to distribute the income to individual members.
5. The new guide includes guidance in case of transfers to a Family Foundation, consequences on juridical persons when acquired or transferred by Family Foundation and implications on Family Offices when wholly owned and controlled by Family Foundations.

Conclusion

The updated guide does not fundamentally change the Family Foundation regime but clarifies certain aspects and includes guidance relevant for the practical application of the rules specifically for multi-tier structures. It also introduces additional sections dealing with tax consequences on specific transactions and implications on Family Offices.