Key takeaways
- Foundations and similar vehicles that meet certain eligibility requirements can apply to be treated as fiscally transparent "Unincorporated Partnerships" allowing them to eliminate UAE Corporate Tax at the foundation level with obligations flowing through to the beneficiaries instead.
- To qualify, foundations must: (i) have only identified or identifiable natural persons and/or public benefit entities as beneficiaries, (ii) focus on investment activities rather than commercial business, (iii) not have tax avoidance as their main purpose, and (iv) meet specific distribution requirements for public benefit entity beneficiaries.
- Legal entities that are wholly owned and controlled by qualifying foundations (such as SPVs in a multi-tiered holding structure) can also obtain transparent treatment, but any minority third-party ownership breaks the qualification chain.
- Family Foundations must register with the UAE Federal Tax Authority before applying for transparent status as Unincorporated Partnerships, with applications due before the end of the relevant tax period. Transitional relief is available for applications submitted before 31 December 2025.
The UAE Federal Tax Authority (FTA) released in May 2025 a Corporate Tax Guide on the Taxation of Family Foundations providing comprehensive guidance on the qualification requirements, the corporate tax treatment and compliance obligations for a qualifying foundation and its beneficiaries.
A Family Foundation is defined for UAE Corporate Tax Law purposes as a foundation or similar entity that meets the following conditions:
- Beneficiary Requirements: The beneficiaries of the foundation must be identified or identifiable natural persons and/or public benefit entities. Natural persons can be named individuals or members of a defined class (such as "children and grandchildren of the founder"). A public benefit entity does not need to be a Qualifying Public Benefit Entity (as defined for UAE CT purposes), so that UAE or foreign not-for-profits or charitable organisations that are not established as Qualifying Public Benefit Entities may qualify as public benefit entities. Permissible beneficiaries also include other Family Foundations that are fiscally transparent for UAE CT purposes. There are no limitations on the minimum or maximum numbers of beneficiaries, nor is it necessary to have a family tie or other relationship between the beneficiaries.
- Principal Activity: The foundation's primary purpose must be receiving, holding, investing, disbursing, or managing assets or funds associated with savings and investments.
- No Commercial Business: The foundation cannot conduct activities that would constitute a business if undertaken directly by its natural person beneficiaries. Activities that would qualify as "Personal Investment" or "Real Estate Investment"1 if undertaken by individuals are permitted.
- No Tax Avoidance Purpose: The foundation's main or principal purpose cannot be corporate tax avoidance.
- Distribution Requirements: Where beneficiaries include public benefit entities, such beneficiaries should not receive from the foundation income that would be considered taxable income for UAE Corporate Tax purposes had they earned such income directly. If this condition is not met, the taxable income must be distributed by the foundation to the public benefit entity within six months from the end of the tax period. For example, if a Family Foundation realises a gain from the sale of a foreign participation that would not qualify for the Participation Exemption, such gain would constitute taxable income if derived directly by the public benefit entity, and it must therefore be distributed within six months from the end of the tax period.
The guidance clarifies that legal entities that are wholly owned and controlled by qualifying Family Foundations (such as SPVs in a multi-tiered holding structure) can also apply for fiscal transparency, provided they meet the same qualifying conditions as the parent foundation and there is an uninterrupted chain of transparent entities. However, the "wholly owned" requirement is applied strictly – even minority third-party ownership breaks the chain and disqualifies subsidiaries from transparent treatment.
Family Foundations can include foundations and analogous incorporated wealth planning vehicles (such as trusts established under the UAE Federal Trust Law or Waqfs irrespective of whether they are formed under domestic (UAE) or foreign laws). Conversely, a purely contractual trust should not be treated as a legal person for UAE Corporate Tax purposes, and should be treated by default as fiscally transparent without the need to submit a separate application with the FTA.
Applications from Family Foundations to request treatment as fiscally transparent Unincorporated Partnerships must be submitted before the end of the relevant tax period, with transitional relief available for applications made before 31 December 2025. Applications should provide background information including details of the beneficiaries and confirmation that the Family Foundation meets the relevant conditions. Ongoing compliance includes annual confirmations filed within nine months of the end of each tax period and demonstrating continued satisfaction of the qualifying conditions. Failure to continue to meet the qualifying conditions means that the foundation (as well as any underlying wholly-owned entity) will revert to taxable person status from the beginning of the tax period in which such failure occurred.
1 Broadly, these consist of investment activities that are conducted for one's own account, that do not require a license and do not constitute a commercial business as defined for UAE regulatory purposes. Real Estate Investment include the direct or indirect sale, leasing, sub-leasing, and renting of land or real estate in situations that do not require a regulatory license for UAE purposes.
