In more detail

Introduction

The interplay of this vibrant new regulatory framework with the recent introduction of a UAE federal corporate tax means that the fiscal landscape presents open questions and challenges for wealth owners and private wealth vehicles. This article surveys how the corporate tax changes impact typical wealth planning structures in the UAE.

By way of background, the UAE consists of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. Legislation is promulgated at several levels: federal laws (covering, for example, company law, value-added tax and corporate tax) and emirate-level regulations (addressing local matters such as real estate ownership). In addition, over the past two decades, the UAE has established several financial free zones and international corporate registries, including the Abu Dhabi Global Market (ADGM), Dubai International Financial Centre (DIFC), Dubai Multi Commodities Centre (DMCC), Dubai World Trade Centre (DWTC) and Ras Al Khaimah International Corporate Centre (RAK ICC). These zones have been instrumental in creating sophisticated regulatory frameworks for private wealth structures and family offices, significantly enhancing the UAE's position in international wealth management.

SFO regimes

DIFC: The DIFC Family Arrangements Regulations of 2023 establish a comprehensive framework for SFOs that wish to operate from the DIFC. Family offices — which can be structured as limited companies, partnerships or foundations — must be licensed with the DIFC Registrar and are eligible under this regime only if the family owns net assets of at least USD 50 million. Obtaining a license as a DIFC family office allows the entity to engage in a wide range of services including strategic business advisory, investment management, tax planning and fiduciary services. While typically limited to serving a single family, with appropriate authorization, a family office may service multiple families, thereby becoming a multi-family office.

DMCC: The DMCC allows DMCC free zone limited liability companies to apply for a specific license to provide family office services to a single family, either directly to such family or to related family entities. A DMCC SFO must be owned by family members or related legal vehicles (if it is possible to establish that the ultimate beneficial owners are members of the same family). Transfers of shares outside the family are prohibited.

DWTC: The DWTC allows DWTC free zone establishments and companies to apply for a specific license to provide professional services and administrative services to a single family. A DWTC SFO must be ultimately owned by a single family, the board of the SFO must be at least 51% controlled by the family, and the family office must have an office space in the DWTC.

ADGM: Unlike the specialized family office regimes established within the DIFC, DMCC and DWTC frameworks, the ADGM currently does not have an ad hoc dedicated regime for family offices. Instead, family offices operating within the ADGM typically structure their operations as special purpose vehicles, such as restricted scope companies. As a restricted scope company, an ADGM SFO is subject to a streamlined version of the company law regulations applicable to ADGM companies, and is owned by one natural person or a group of natural persons who are members of the same family. The ADGM Registration Authority initiated a public consultation to consider potential amendments to the ADGM SFO regime, including clarifying the list of permissible SFO activities, and introducing minimum capital requirements for an SFO. The consultation period concluded on 14 July 2024, suggesting regulatory changes in the ADGM are likely to take place in the coming months.

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Family foundations

The UAE offers three separate foundation regimes: in the ADGM, DIFC and the RAK ICC. While the ADGM, DIFC and RAK ICC foundation regimes differ in specific provisions, they share a common framework derived from civil law traditions. These similarities create a recognizable structure across all three jurisdictions.

Each foundation regime requires a foundation council comprising at least two members to manage the foundation's affairs, with no strict residency or licensing requirements for councilors. Founders can maintain substantial control through extensive reserved powers. All three frameworks establish the position of guardian to provide oversight of the council's activities, though the requirement becomes mandatory under different circumstances across the jurisdictions. The regimes also demonstrate flexibility through continuance provisions, allowing foreign foundations to qualify as local foundations and enabling conversion from corporate entities to foundations in several instances.

UAE corporate tax

On 9 December 2022, the UAE Ministry of Finance issued Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses ("CT Law"), effective for accounting periods beginning on or after 1 June 2023. The CT Law establishes the following tax treatment framework:

• Free zone entities: UAE free zone entities ("Qualifying Free Zone Persons") benefit from 0% corporate tax on qualifying income, with non-qualifying income taxed at 9%. Qualification requires meeting specific conditions under Article 18, including maintaining adequate substance in a UAE free zone.
• Mainland businesses: Entities operating outside free zones face a 9% corporate tax on taxable income exceeding AED 375,000, unless they qualify within narrow exemptions that are designed primarily for government entities, extractive businesses, qualifying public benefit entities and qualifying investment funds.

Family Foundations are generally classified as taxable persons required to register with the UAE Federal Tax Authority (FTA) and subject to corporate tax. However, Article 17 of the CT Law provides an alternative treatment option, allowing Family Foundations to apply for classification as Unincorporated Partnerships when meeting all these conditions:

• It is established for identified or identifiable natural persons, a public benefit entity or both.
• The principal activity is limited to receiving, holding, investing, disbursing or managing assets or funds associated with savings or investment.
• Family Foundations should not conduct activities that would constitute a business if undertaken directly by founders, settlors or beneficiaries (which, for these purposes, does not include real estate investment and personal investment activities).
• Tax avoidance should not be the main or principal purpose.
• Any additional conditions prescribed by the UAE Minister of Finance should be satisfied.

Family Foundations qualifying as Unincorporated Partnerships effectively receive tax-transparent treatment, with taxation determined at the level of the beneficiaries/partner in case of distributions.

On 28 October 2024, the UAE Ministry of Finance issued Ministerial Decision No. 261, providing key clarifications regarding Unincorporated Partnership elections for Family Foundations, as follows:

• Irrevocability provision: FTA-approved applications for Unincorporated Partnership treatment become irrevocable apart from exceptional circumstances requiring explicit FTA approval.
• Reporting requirements: Upon election approval, the Family Foundation must designate a responsible partner who must inform the FTA of any changes in beneficiary classes during the relevant tax period.
• Subsidiary treatment option: Legal entities wholly owned and controlled by a Family Foundation that independently satisfy Article 17 conditions may also qualify for Unincorporated Partnership treatment, thereby accessing the same tax-transparent status.

SFOs that are incorporated as separate legal entities under the DIFC, DMCC, DWTC and ADGM regimes described above are also treated as taxable persons required to register with the UAE FTA and are subject to UAE corporate tax on their profits.

SFOs are unlikely to qualify as exempt persons for purposes of the CT Law, as they generally do not qualify as government entities, extractive businesses or public benefit vehicles. Despite operating in the investment domain, SFOs also do not qualify as Qualifying Investment Funds because this classification requires interests to be traded on exchanges or marketed widely to investors — a structure incompatible with free zone SFO licensing requirements that restrict shareholding outside a single family.

SFOs also face challenges qualifying for 0% rates on investment management services as Qualifying Free Zone Persons. The FTA's Corporate Tax Guide on Free Zone Persons specifies that wealth and investment management services qualify for preferential treatment only when these activities are subject to regulatory oversight by competent investment authorities (Central Bank of UAE, Dubai Financial Services Authority of the DIFC, the Financial Services Regulatory Authority of the ADGM or the UAE Securities and Commodities Authority). SFOs managing investments for a single family operate outside this regulatory framework and would not, therefore, be able to qualify for preferential 0% tax treatment on wealth and investment management services. Expanding services to third parties would ensure the necessary regulatory oversight, but would exceed SFO license parameters, effectively transforming the entity into a multi-family office.

The CT Law requires adherence to arm's length principles for all related party transactions, eliminating the possibility of providing services to family vehicles on a no-cost basis. Nevertheless, given the AED 375,000 threshold before corporate tax applies, and considering that SFOs typically function as cost centers with substantial infrastructure and personnel expenses, the practical UAE corporate tax implications for an SFO can be mitigated with strategic advance planning.

Conclusion

The UAE continues to strengthen its position as a leading jurisdiction for private wealth management through sophisticated regulatory frameworks for family offices and foundations. The introduction of corporate taxation represents a significant shift in the landscape, requiring careful consideration in structuring wealth management vehicles. Despite these changes, the UAE maintains its competitive edge through diverse free zone options, each offering distinct advantages tailored to specific wealth preservation objectives. As regulatory frameworks evolve, professional advisers play a critical role in optimizing structures that balance compliance requirements with tax efficiency, ensuring alignment with both UAE regulations and international reporting standards.