Ministerial Decision No. 261 of 2024 introduced updates to the UAE Corporate Tax Law, with significant implications for the tax treatment of UAE foundations. These changes aim to provide clarity and flexibility in how such structures are taxed, particularly for wealth management and family foundations.

Key Tax Implications for UAE Foundations:

1. Tax Transparency for Family Foundations:

• Qualifying family foundations can apply for recognition as “Unincorporated Partnerships,” allowing them to be treated as tax-transparent entities. This means that the foundation itself is not taxed; instead, the tax liability is passed to the beneficiaries or owners. This structure promotes efficient wealth management by reducing overall tax obligations when compared to standard corporate tax rates​.

2. Requirements for Tax-Transparent Status:

• A family foundation must primarily handle the management, holding, and investment of assets and not engage in business activities requiring a corporate tax license. This ensures that its principal activities remain focused on savings and investment, qualifying it for the tax relief measures​
• The foundation must maintain an uninterrupted ownership chain through vehicles that also meet the criteria for Unincorporated Partnerships.

3.  Implications for Beneficiaries:

• If a foundation qualifies for tax transparency, beneficiaries are taxed directly on their share of income, and distributions must occur within specific timeframes to comply with UAE tax laws. This can simplify wealth distribution and tax reporting for family offices

4. Benefits for Wealth Planning:

• These changes enhance the attractiveness of the UAE for private wealth structuring. They support high-net-worth families in protecting their assets and ensuring intergenerational wealth transfer while minimizing tax exposure​.

5. Effective Date:

• The new provisions apply retroactively from June 1, 2023, ensuring that entities formed earlier can benefit from the new rules as long as they comply with the criteria​.

Key Compliance Requirements:

Foundations and their advisors must ensure proper structuring, record-keeping, and timely tax filings to benefit from these exemptions. Non-compliance with the requirements or conditions may lead to the foundation being treated as a taxable corporate entity.

These updates highlight the UAE’s commitment to maintaining a competitive, family-friendly tax environment, further solidifying its position as a global hub for wealth management and asset protection. For tailored advice, it is recommended to consult tax professionals familiar with UAE corporate tax laws.