In 2024, the UAE continued to attract a significant number of new residents, including thousands of high-net-worth individuals (HNWIs) with at least $1 million each, in liquid assets. This marked the third consecutive year that the UAE ranked as the top destination for migrating millionaires.
The influx of wealthy individuals has driven a surge in foundation structures, with the Dubai International Financial Centre (DIFC) reporting a 51% increase throughout the year. Globally, family offices and foundations are widely used for asset protection and succession planning, and in the UAE, HNWIs are increasingly leveraging these structures to safeguard and optimise their wealth.
Recent residency reforms have further contributed to the country’s growing population. With greater stability and long-term security, residents are investing more in local assets and seeking protection through foundation structures. These can be established in key financial jurisdictions such as the Ras Al Khaimah International Corporate Centre (RAKICC), DIFC, and Abu Dhabi Global Market (ADGM).
Family foundations
Family foundations in the UAE are typically recognised as separate legal entities and are therefore subject to UAE corporate tax by default. However, certain family foundations may opt for classification as Unincorporated Partnerships for tax purposes.
This classification allows the foundation’s income to be taxed at the beneficiary level (natural persons or public benefit entities), potentially exempting the foundation itself from corporate tax. Natural person members are subject to corporate tax if their income from business activities in the UAE exceeds Dh1,000,000 in a calendar year. However, certain incomes, such as wages, income from real estate investments or personal investments, are excluded when calculating this threshold.
To qualify for this tax-transparent status, the foundation must primarily manage, hold, and invest assets without engaging in business activities that require a license.
The application must be made online through the Federal Tax Authority (FTA) portal and requires the following documentation:
- Memorandum of Association or Trade licenses
- Summary of assets, liabilities, income and expenses or financial statements
- Founding document of the public benefit entity (only applicable if one or more beneficiaries is a public benefit entity)
- Supporting documents (optional)
Family offices
The tax treatment of family offices in the UAE varies based on their specific legal structure and location. Family offices established within free zones, such as the Dubai International Financial Centre (DIFC), may benefit from tax incentives, including potential exemptions from corporate tax. However, these benefits are contingent upon meeting the specific regulatory requirements of the respective free zone. It’s important to note that while free zones offer certain tax advantages, the introduction of the UAE corporate tax law has implications for entities operating both within and outside these zones.
A structured family office registered as a corporate entity (e.g., LLC, Private Company) is generally subject to corporate tax. If it earns more than Dh375,000 per year, it will pay the 9% corporate tax on profits beyond this threshold. However, if it qualifies as a Qualifying Free Zone Person, it may benefit from a 0% corporate tax rate on certain eligible incomes.
Investment income – things to note
- Income from passive investments (i.e. stocks, bonds, real estate) may be exempt from corporate tax if held by individuals.
- Real estate income may not be taxed if owned in a personal capacity.
- However, if a family office actively manages investments as a business, it may be taxed.
Key takeaways for businesses
- Unincorporated Partnerships are considered tax transparent, with profits/losses taxed at the partner level.
- Family Foundations can opt for corporate tax treatment or maintain tax transparency based on specific conditions.
Key considerations
The UAE has implemented anti-avoidance provisions to prevent entities from exploiting tax benefits improperly. Foundations and family offices should ensure that their primary purpose is not tax avoidance to remain compliant.
Given the complexities and potential variations in tax obligations based on individual circumstances, family offices and foundations should consult with tax professionals or legal advisors to ensure compliance with UAE Corporate Tax laws and to optimise their tax positions.
