How Family Trusts and Foundations Can Benefit from UAE Corporate Tax Rules
The UAE Corporate Tax (CT) law has introduced important changes that impact how family trusts, foundations, and holding companies are taxed. A recent Ministerial Decision by the Federal Tax Authority (FTA) clarified how these structures can apply to be treated as fiscally transparent.
But what does that mean in practice? Let’s break it down in simple terms.
What is Fiscal Transparency?
Normally, a company pays tax on its profits before passing the income to its owners. But when an entity is approved as fiscally transparent:
- The company itself is not taxed.
• Instead, the income is “passed through” to the ultimate beneficiaries (the individuals or families).
• This avoids double taxation and makes tax reporting much simpler.
Example: Family Trust + Holding Company
Imagine a family sets up the following structure in Abu Dhabi Global Market (ADGM):
– An ADGM Foundation (Family Trust) at the top.
– A 100% owned Holding Company below it.
– The Holding Company invests in shares and earns USD 10 million profit during the year.
If the FTA approves both the Foundation and the Holding Company as fiscally transparent, here’s what happens:
- Holding Company: Reports the USD 10m profit, but since it is transparent, the income is allocated upwards to the Foundation. No corporate tax is paid at this level.
2. ADGM Foundation: Also treated as transparent. It allocates the USD 10m to the named family beneficiaries. Again, no corporate tax at this level.
3. Beneficiaries (Individuals): Each family member receives their share of the profit. If they are UAE residents, this income is completely tax-free, since individuals in UAE are not taxed on personal investment income.
Final Outcome
Corporate tax payable in UAE: Zero.
– Beneficiaries receive their full share of profits tax-free.
– The structure remains fully compliant and approved by the FTA.
Why This Matters for Families
This is excellent news for families who want to:
– Protect and grow their wealth.
– Avoid double taxation between entities and beneficiaries.
– Use ADGM or DIFC foundations for succession planning and estate protection.
– Keep tax compliance simple and transparent.
Key Takeaways
– UAE now allows family foundations and trusts to apply for fiscal transparency.
– With approval, profits are passed through without corporate tax at the entity level.
– Individuals in UAE do not pay tax on personal investment income.
– Proper structuring and FTA approval are essential to enjoy these benefits.
👉 If you are considering setting up a family trust, ADGM/DIFC foundation, or a holding company for investments, our team at The Alchamii Auditing of Accounts LLC can guide you through the best structure to ensure tax efficiency, compliance, and family wealth protection.
📩 Contact us today on jayesshguptaa@thealchamii.com to explore the right solution for your family’s legacy.
