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UAE family foundations: Three wins for the price of one — wealth, succession, and taxes

Family foundations have long served as powerful tools for preserving and growing family wealth

Published: Mon 16 Dec 2024, 10:09 PM

  • By
  • Kinjal Sampat

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In the ever-evolving world of wealth management, the UAE has introduced a trailblazing approach that promises to hit three birds wealth preservation, succession planning, and tax efficiency with a single stone.

Through its innovative corporate tax regime, the UAE now allows family foundations to opt for tax transparency by being treated as unincorporated partnerships, offering families unparalleled flexibility and control over their financial strategies.

This progressive move redefines how family wealth is managed, ensuring smooth generational transitions, maximizing financial efficiency, and contributing meaningfully to societal goals. By combining wealth, legacy, and tax management under one streamlined framework, the UAE has positioned itself as a global leader in financial innovation.

Family foundations have long served as powerful tools for preserving and growing family wealth. They provide a secure structure for managing assets, distributing benefits to family members, and supporting philanthropic endeavours. In the UAE, these foundations now have a new dimension: the option to embrace tax transparency, fundamentally reshaping how they interact with the country’s tax system.When treated as unincorporated partnerships, family foundations become tax-transparent. Their income is not taxed at the foundation level but passed directly to beneficiaries. Given the UAE’s unique tax framework—focused on business profits rather than personal investments or salaries — this structure provides significant advantages for UAE residents. However, non-residents or individuals in jurisdictions with citizenship-based or inheritance taxes need to analyse the tax implications separately.

To qualify for tax-transparent status, a family foundation must meet specific conditions. These include being established for the benefit of identified individuals or public entities, managing investments rather than engaging in business activities, and adhering to all relevant regulations. Additionally, ministerial decision No. (261) of 2024 extends this tax treatment to subsidiary entities wholly owned by family foundations, provided they meet strict criteria. These include being entirely owned and controlled by the foundation, either directly or indirectly through other unincorporated partnerships, and fulfilling all required conditions.

The introduction of tax transparency for family foundations is more than a regulatory change — it is a strategic revolution that addresses three core pillars of family wealth management. By eliminating corporate tax at the foundation level, families can focus on protecting and growing their assets, free from unnecessary tax burdens, ensuring wealth preservation. Tax transparency simplifies the transfer of wealth across generations, ensuring a seamless and efficient transition of family legacies, thus enhancing succession planning. Directly passing tax liabilities to beneficiaries reduces administrative complexities and aligns with global best practices for financial transparency.

The UAE’s move to offer this tax-transparent framework is a testament to its commitment to financial innovation. By creating an environment that caters to the needs of modern families and their complex financial ecosystems, the country has strengthened its reputation as a preferred destination for wealth management.

This approach aligns seamlessly with the UAE’s broader vision of becoming a global leader in economic diversification and sustainable development. By providing a framework that balances individual financial goals with societal contributions, the UAE continues to set benchmarks for governance and financial excellence. The UAE’s innovative family foundation structure is not just a regulatory update; it is a game-changer. By addressing wealth preservation, intergenerational legacy, and tax efficiency in one comprehensive solution, it enables families to focus on long-term growth and societal impact.

This is a perfect example of hitting three birds with one stone. Families can now protect their wealth, plan their legacy, and optimise their tax strategies all within a framework that promotes transparency, compliance, and efficiency.

The writer is Associate Partner, MICS.



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