In the ever-evolving landscape of wealth management and asset protection, the UAE has introduced a ground-breaking approach for family foundations to optimise their financial strategies. Under the UAE Corporate Tax regime, family foundations now have the option to be treated as unincorporated partnerships, a move designed to provide flexibility and transparency in managing personal assets and investments.
Family foundations play a pivotal role in safeguarding and growing a family’s wealth, ensuring a seamless transition across generations, and contributing to philanthropic endeavours. The key players in this structure are the founder, board, and beneficiaries, each holding distinct responsibilities in the management and distribution of assets.
One of the recent developments in UAE’s financial regulations is the provision allowing family foundations to apply for tax transparency, specifically to be treated as Unincorporated Partnerships. This designation comes with a set of conditions to ensure the foundation’s activities align with the intended purpose and do not serve as a means to evade corporate taxes.
For a family foundation to be considered an unincorporated partnership, it must meet several criteria:
a) The foundation is established for the benefit of identified or identifiable natural persons or a public benefit entity; b) Its principal activity is the management of assets or funds associated with savings or investment; c) The foundation does not engage in any business or business activity; d) The primary purpose is not the avoidance of corporate tax; e) Compliance with any additional conditions prescribed by the minister.
Upon approval of the application, the family foundation is treated as tax transparent, marking a significant shift in how incomes earned by these entities are handled. The beneficiaries are now seen as directly owning or benefiting from the foundation’s activities and assets.
This tax-transparent approach offers family foundations a strategic advantage, as incomes earned under these conditions are not subject to corporate tax in the hands of such foundation. It fosters a conducive environment for effective wealth management, succession planning, and philanthropy, aligning with the broader vision of financial growth and societal contribution.
As the UAE continues to position itself as a hub for financial innovation, the introduction of tax transparency for family foundations underscores the commitment to providing a robust and flexible framework for managing personal wealth. This progressive approach not only enhances the attractiveness of the UAE as a financial centre but also empowers families to navigate the complexities of wealth management with greater agility and foresight.
The writer is Partner, MICS