Family businesses in the UAE serve as emblematic pillars of national economic success and development. Their significance extends beyond commercial success, encompassing contributions to innovation, job creation, and sustainable growth. With deep-rooted ties to the community and a commitment to long-term success, these enterprises play a vital role in diversifying the UAE’s economy, aligning with the government’s vision for economic stability and prosperity.
In the wake of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the Corporate Tax Law), understanding the nuances of tax considerations becomes paramount for family businesses and the broader public wealth sector in the UAE. Such considerations are especially salient for families with an international presence operating out of the UAE, which could now face risks of double taxation.
Effective June 1, 2023, the Corporate Tax Law marks a significant shift, introducing corporate tax on businesses’ taxable income. While certain entities may be exempt from this tax, the general corporate tax rate is structured to be favourable, with a 0% rate applicable on income up to Dh375,000 and a modest 9% rate on income exceeding this threshold. However, the tax rate can be reduced to 0% on qualifying income for entities meeting specific conditions as Qualifying Free Zone Persons, offering further incentives for family businesses operating within free zones.
Compliance with the Corporate Tax Law mandates that all taxable persons must register for corporate tax with the Federal Tax Authority (FTA) within prescribed timelines. Subsequently, electronic filing of tax returns is required within nine months following the end of the relevant tax period, ensuring adherence to regulatory requirements.
For family businesses considering succession planning and governance, the Corporate Tax Law presents advantageous provisions through the concept of Family Foundations. These structures, designed to facilitate succession planning and governance, may enjoy favourable tax treatment, provided they meet specific criteria and refrain from engaging in business activities. Notably, Family Foundations are not considered taxable persons under the Corporate Tax Law, thus exempting them from corporate tax liabilities. Moreover, individual partners within Family Foundations may be exempt from taxation on real estate or personal investment income, enhancing their appeal as tax-efficient structures.
Furthermore, families engaged in philanthropic endeavours can leverage the Corporate Tax Law by establishing Qualifying Public Benefit Entities. These entities, dedicated to charitable or public benefit activities, are exempt from corporate tax, underscoring their societal significance and collaborative role with the government in advancing social welfare objectives.
In addition to these specialised structures, tax-efficient holding companies offer a compelling proposition for family businesses seeking to optimise tax strategies. Under the Corporate Tax Law, dividends and profit distributions received from UAE entities, including holding vehicles, are exempt from corporate tax. This exemption facilitates asset consolidation and tax optimisation, providing families with a strategic mechanism for managing various assets and investments under a single umbrella.
However, realising the benefits under the Corporate Tax Law requires proactive application and compliance with FTA regulations. Engaging with tax professionals for strategic planning and staying abreast of evolving tax laws and compliance requirements are fundamental for ensuring tax efficiency and mitigating risks associated with non-compliance.
In conclusion, navigating the UAE’s corporate tax landscape presents opportunities for family businesses to optimise operations, mitigate risks, and unlock prosperity. As key contributors to the UAE’s economic fabric, these enterprises play a pivotal role in shaping the nation’s future while embodying resilience and entrepreneurship within an evolving tax framework.
