UAE CT Updates: Major Gains for HoldCos under Family Foundations. Explore More!

The UAE’s recent update on family foundations, under Ministerial Decision No. 261 of 2024, marks a significant milestone for high-net-worth families and holding companies seeking innovative ways to manage and protect their wealth. Taking effect retroactively from June 1, 2023, this decision offers a host of advantages that could reshape how families structure their wealth, safeguard assets, and plan for the future. From enhanced tax relief to simplified governance and greater flexibility, this update makes family foundations an indispensable tool for wealth managers in the UAE.?

What Is a Family Foundation??

A family foundation is a legal entity such as a trust, foundation, or similar structure, designed to manage and protect the wealth of an individual or family. It can hold, invest, and disburse funds and assets for the benefit of individual beneficiaries or charitable purposes. Under UAE Corporate Tax Law, these activities generally don't qualify as a “business” or “business activity” if carried out by the foundation's founder, beneficiaries, or other individuals.?

Key Highlights of the MoF Update on Family Foundations?

Tax Transparent Status for Foundations?

One of the most significant features of the recent MoF update is the option for family foundations to apply for tax transparent status. This new provision provides clear and predictable tax treatment, removing the need to verify individual asset holders or members. It simplifies compliance, reduces red tape, and makes tax reporting straightforward—empowering families to focus on growing and preserving their wealth.?

Family Foundations Treated Like Individuals?

A major benefit of the update is how income generated by wholly owned entities of the foundation—such as Single-Family Offices (SFOs)—is treated. Income is now taxed as if it were earned directly by the foundation’s founders or council members. This change aligns the treatment of family foundations with the tax benefits traditionally enjoyed by individuals, making asset management more flexible and tax filings easier.?

Streamlined Succession Planning and Wealth Protection?

Succession planning is the core?of family foundation structures, and the MoF update significantly simplifies this process. With tax transparency provisions, UAE family foundations can focus more on long-term wealth preservation and less on tax compliance. This makes family foundations an ideal solution for securing family legacies and ensuring a smooth transition of wealth across generations.?

Alignment with the UAE’s Corporate Tax Framework?

The update also strengthens the alignment of family foundations with the broader UAE corporate tax framework. By treating family foundations similarly to unincorporated partnerships, the update ensures that these entities benefit from favorable tax treatments while operating seamlessly across jurisdictions. This enhanced clarity empowers families to navigate the UAE’s tax landscape with ease, whether based in the DIFC, ADGM, or RAK ICC.?

Incentive for Asset Consolidation?

The MoF update provides a powerful incentive for families to consolidate assets under family foundations. Positioning a foundation at the top of the ownership structure achieves tax neutrality for all underlying assets, making wealth management more efficient and offering stronger asset protection. HoldCos under family foundations can now hold assets like bank accounts, portfolios, and real estate without being subject to UAE CT, bypassing the 12-month holding period for tax relief. This simplifies private wealth management.?

What are the important factors to consider before implementation??

Families should carefully review their existing wealth structures to assess how the recent MoF update can enhance their tax relief and asset management strategies. While the opportunities are vast, it's important to ensure that specific conditions outlined in the update are met for maximum benefit. As of now, the Federal Tax Authority (FTA) has not yet released the application form for tax transparency, and it remains to be seen whether the application will need to be filed annually or just once. In more complex cases, families may need to seek private clarification from the FTA—especially when foundations hold assets as trustees or when determining whether tax transparency applies to purpose foundations.?

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