UAE's Federal Tax Authority Releases New Guide on Family Foundations (CTGFF1)

According to the latest "Henley Private Wealth Migration Report," the UAE welcomed a 6,700 high-net-worth individuals (HNWIs) in 2024. As of 2024, the country is home to over 116,500 residents with a net worth exceeding USD 1 million, which includes 308 centi-millionaires (individuals with a net worth of USD 100 million or more) and 20 billionaires.

The UAE Ministry of Finance's strategic plan for 2023-2026 includes goals such as designing balanced tax policies that are current with local and international developments, enhancing the competitiveness of the business environment, and developing international tax relations. Therefore, the introduction of the favorable tax approach for the HNWIs and their families completely aligns with the country’s strategy.

In May 2025 the Federal Tax Authority (FTA) has issued a new guide CTGFF1, providing clarity on the corporate tax treatment of family foundations. This guidance is to assist high-net-worth individuals, family offices, founders, beneficiaries, and their advisors in understanding the implications of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) on these wealth management structures.

The CTGFF1 guide outlines the conditions under which a family foundation can be treated as an unincorporated partnership for corporate tax purposes, effectively rendering it tax transparent. This means the foundation itself would not be subject to corporate tax; instead, the income would be considered as accruing directly to the beneficiaries, who would then be taxed based on their individual or entity status.

We have prepared a very brief analysis of the provisions of CTGFF1 Guide.

Scope. The term family foundation in the UAE is not a specific type of a legal entity but a concept under the UAE corporate tax legislation of an entity that families may use for managing wealth. Therefore, legal entities under different legal forms (DIFC, ADGM or RAK ICC foundations, trusts or similar entities) and not necessarily in the UAE can meet the definition of a family foundation as prescribed by the UAE corporate tax law.

Unincorporated trust structures and arrangements that do not have a separate legal form are by default considered unincorporated partnerships and therefore fiscally transparent for corporate tax law.

The CTGFF1 guide also provides an example when foreign foundation which has a real estate nexus in the UAE and is therefore considered a taxable person in the country can be also considered tax transparent for the corporate tax purposes subject to meeting the conditions prescribed by the law.

The CTGFF1 guide also provides a detailed guidance for multi-tier structures, which can be transparent for the corporate tax purposes. This means that not only the family foundation itself but also its wholly owned and controlled juridical persons can be treated as fiscally transparent unincorporated partnerships.

Conditions for tax transparency (status of unincorporated partnership): To achieve tax-transparent status, a family foundation must meet several conditions (article 17 (1) of Corporate tax law), including:

beneficiary condition: there are identified or identifiable natural persons (individuals, including unborn children) or qualifying public benefit entities as beneficiaries;
principal activity condition: its principal activity is the management of assets and receiving benefits from these assets. This may for example include purchasing and selling of stocks, bonds, real estate or other assets to generate income for the beneficiaries;
no business activity condition: the family foundation does not conduct business activity as defined by the Corporate tax law. The CTGFF1 guide provides an example of two types of activity with real estate: leasing out of residential units which does not require a license (no business activity condition is met) and operation of a motel which requires a license (no business activity condition is not met). CTGFF1 does not provide explicit thresholds or guidance for the scale or frequency of transactions. Therefore, a foundation managing a very large and actively traded portfolio, potentially requiring significant infrastructure and personnel, might face scrutiny even if the underlying assets are traditional investments;
no tax avoidance condition: the primary purpose of the family foundation cannot be the avoidance of corporate tax. It is important to remember that the general anti-abuse rules (GAAR) embedded within the UAE CT Law (e.g., Article 50) remain applicable to the broader structuring context. These rules empower the FTA to disregard arrangements where the principal purpose is to obtain a tax advantage inconsistent with the intent of the law, focusing on "substance over form";
distribution condition: if a beneficiary is a qualifying public benefit entity, it must either be exempt or distribute funds within six months.

Tax compliance

By default, a family foundation is considered a taxable corporation and must register for corporate tax and obtain a Tax Registration Number (TRN) within three months of its establishment.

Family foundations which plan to be treated as unincorporated partnerships must apply to the FTA. This application needs to be submitted annually, within nine months from the end of the tax reporting year. The list of beneficiaries must be disclosed to the FTA when applying for tax transparency. Foundations cannot adopt a "set and forget" approach. Their activities, asset holdings, and beneficiary circumstances must be proactively monitored throughout each tax period to ensure that none of the qualifying conditions are inadvertently breached.

Income received by individual beneficiaries from a tax-transparent family foundation is generally not subject to UAE corporate tax, provided the income does not arise from a business or business activity (as defined by the corporate tax legislation) conducted by the beneficiary in the UAE that exceeds the AED 1 million threshold in a calendar year.

CTGFF1 requires maintaining proper and detailed records. Family foundations must keep comprehensive documentation to demonstrate their compliance with all the qualifying conditions and to support their tax positions and any filings made with the FTA. This includes, but is not limited to, the foundation's charter or trust deed, up-to-date registers of beneficiaries, detailed records of assets and liabilities, financial statements, minutes of council/trustee meetings, and logs of activities undertaken.

If a family foundation fails to meet the qualifying conditions at any point during a tax period, it will lose its unincorporated partnership status for that entire tax period and become fully taxable as a corporation from the beginning of that year.

Implications for family wealth management

The CTGFF1 guide provides a clear framework for families in the UAE to structure their wealth in a tax-efficient manner while ensuring compliance with the new corporate tax regime. It emphasizes the importance of careful planning and adherence to the specified conditions to benefit from the tax transparency provisions. Families are encouraged to review their existing foundation structures to ensure they meet all qualifying requirements.