UAE Reinforces its Commitment to Family Wealth and Tax Transparency

Introduction to UAE Family Foundations

The UAE has taken significant steps to reinforce its role as a global leader in private wealth management. In April 2025, the Federal Tax Authority (FTA) introduced a new digital application process for Family Foundations via the EmaraTax platform, simplifying how families manage succession and tax responsibilities.

This move follows the issuance of Ministerial Decision No. (261) of 2024, which significantly enhances the tax treatment of entities owned by UAE-based family foundations. In light of these regulatory upgrades, families and business owners should now seriously consider establishing a RAKICC Foundation – a powerful legal structure for holding and growing wealth across generations.

What Is a RAKICC Foundation?

A RAK International Corporate Centre Foundation is a legal entity commonly used to manage assets like real estate, equity holdings, or intellectual property. It is ideal for families looking to:

• Protect and separate personal assets from business risks
• Ensure smooth intergenerational wealth transfer
• Avoid local taxes on capital gains, income, and inheritance
• Establish a legally recognized structure with strong governance

RAKICC Foundations are governed under UAE civil law and are frequently used as alternatives to offshore trusts due to their flexibility, cost efficiency, and local jurisdictional benefits.

Ministerial Decision No. 261 of 2024: What Changed?

In late 2024, the UAE government issued Ministerial Decision No. 261 of 2024.

This wasn’t just a technical update. It was a major shift in how the government views family wealth.

The Core Change

Before this decision, tax transparency applied mainly to the foundation itself, not to the other companies or structures it owned.

Now, foundations and their wholly owned subsidiaries, such as:

• Single-Family Offices (SFOs)
• Proprietary Investment Companies
• Special Purpose Vehicles (SPVs)

can all apply to be treated as tax-transparent under the UAE Corporate Tax Law.

This means:

• Income earned by these entities is not taxed at the entity level.
• Instead, income is treated as belonging to the beneficiaries’ individuals or family members.
• If those individuals are exempt from tax (as many are in the UAE), then no corporate tax is paid at all.

This is a major win for families using clean structures.

It gives them control. It avoids double taxation. And it encourages them to keep their wealth in the UAE, rather than spreading it across less regulated places.

What Does the Foundation Need to Qualify?

To be eligible for tax-transparent treatment, the foundation must meet specific conditions:

1. Non-Commercial Focus: The main activity should be asset management or investment, not business trading.
2. Beneficiary-Driven: The foundation should be set up to benefit individuals or philanthropic causes, not corporations.
3. Clean Purpose: It must not exist only to avoid taxes. There needs to be a clear purpose: family planning, succession, or charitable support.
4. Wholly Owned Subsidiaries: Any company claiming tax transparency under the foundation must be 100% owned and managed by the foundation or other tax-transparent subsidiaries.

Understanding Tax Transparency in the UAE

What is tax transparency? In the simplest terms, it means the entity itself is not taxed. Instead, the income is treated as if it belongs directly to the people behind it, the beneficiaries.

Let’s say your family foundation owns a company that earns AED 5 million a year from investments. With tax transparency in place, that AED 5 million is not taxed as company income. Instead, it’s seen as income earned by the foundation’s beneficiaries. If they are exempt from UAE tax, then there’s no corporate tax to pay. This system removes an extra layer of tax.

In other countries, companies and trusts often get taxed twice, once at the company level and again when the income reaches the individual. That creates a burden for families with cross-border structures.

The UAE’s approach is different. But to qualify, your structure must be clean, purpose-driven, and focused on long-term investments, not short-term profits.

Why This Matters

Tax transparency offers a major advantage for families with significant investments or long-term assets. It also signals credibility to international banks, tax authorities, and business partners, making it especially valuable for:

• Families with real estate portfolios
• Investors who manage wealth across multiple jurisdictions
• Founders who want to pass assets to children without tax issues
• Family offices running multi-generational planning

Types of Activities That Qualify

Understanding which activities qualify for tax transparency and which aren’t essential for families considering a UAE-based foundation. Getting this right ensures your foundation is structured to protect wealth, pass assets smoothly, and stay compliant with UAE tax rules.

1. Personal Investments

This includes holding stocks, bonds, or other long-term financial instruments. For example, a family might own shares in a UAE-based listed company or an overseas investment fund. These investments generate dividends, interest, or capital gains, not active business income. As long as the foundation isn’t running a trading desk or speculative fund, these investments align with tax transparency.

2. Real Estate Holdings

If a foundation owns real estate primarily to generate rental income, such as leasing out residential villas, office spaces, or commercial units, it qualifies as a passive investment. Even if the foundation oversees maintenance or contracts with property managers, the core activity is passive income. But if the foundation starts buying and selling properties regularly or develops them for sale, that crosses the line into commercial activity, and tax transparency would no longer apply.

3. Passive Income Generation

Interest from bank deposits, dividends from shares, or royalties from intellectual property can qualify if they’re earned as part of a family’s investment strategy, not as part of an active business. For example, holding a stake in a UAE-based bank that pays dividends would be considered passive income.

4. Long-Term Wealth Planning

This includes activities like managing succession plans, organizing assets for the next generation, and ensuring proper governance of the family’s financial affairs. A foundation can act as the legal owner of various family investments, ensuring smooth transfer of ownership without disputes or probate. This structure is especially useful for multi-generational wealth planning.

5. Philanthropic Support

Foundations that are set up to support charities, educational initiatives, or community projects can benefit from tax transparency. For example, a family foundation might fund scholarships or build community centers. The key is that these activities are not run as profit-making businesses but as genuine philanthropic efforts.

6. Single-Family Offices (SFOs)

An SFO under a foundation can coordinate the family’s investments, manage portfolios, and oversee trusts or SPVs. As long as the SFO does not provide services to third parties for a fee, its activities can be considered passive. This aligns perfectly with the UAE’s goal of supporting genuine family wealth structures.

7. Holding Companies Under Foundations

A foundation may hold 100% ownership of a holding company, which in turn can own shares in family businesses, real estate assets, or other investments. For instance, the holding company might own equity in multiple real estate SPVs and a minority interest in a family-operated manufacturing enterprise. Provided the holding company does not engage in active business operations but merely holds these assets, it is classified as a passive investment structure.

8. Consolidated Wealth Management

Families with diversified investment portfolios across multiple jurisdictions can benefit from consolidating these assets under a single foundation. This approach centralizes management, enhances regulatory compliance, strengthens governance frameworks, and simplifies financial reporting. Under the applicable tax transparency regime, investment income can be efficiently distributed to designated beneficiaries.

Types of Non-Qualifying Activities

1. Active Trading or Manufacturing

Where a foundation or its subsidiary engages in the buying and selling of goods, manufacturing products, or delivering service-based operations such as consulting or marketing, the activity is deemed commercial. For example, if the foundation owns and operates a furniture manufacturing facility or a chain of retail stores, it falls outside the scope of tax transparency and may trigger corporate taxation.

2. Real Estate Development for Sale

Engaging in the acquisition of land, construction of residential or commercial units, and subsequent sale for profit constitutes a commercial business activity. Even if such ventures are intended to support long-term family wealth generation, the operational nature of the activity is classified as taxable.

3. Third-Party Investment Services

If a foundation provides investment management services to other families, individuals, or businesses in exchange for a fee, it is considered to be carrying out a commercial service. Regardless of whether the foundation is owned by a single family, offering fee-based services to third parties qualifies as a taxable business activity.

4. Foundations Acting as Operating Companies

In instances where a foundation directly conducts business operations such as offering consulting services, managing events, or operating a construction firm, it is treated as a commercial entity. Foundations structured in this manner fall within the scope of corporate taxation.

5. Aggressive Tax Planning Structures

Foundations established solely for the purpose of shifting funds between jurisdictions, without any substantive investment activity or legitimate family governance objectives, may not qualify for preferential treatment. Regulatory authorities assess the actual substance and intent behind such structures to determine whether they are aimed at genuine wealth management or simply tax avoidance.

6. Multiple Beneficiaries with Complex Ownership

Structures involving multiple corporate beneficiaries or a broad base of shareholders rather than clearly defined individual family members may not align with the intended scope of the UAE’s foundation framework. The regime is designed to support family-oriented succession and wealth planning, not large-scale corporate or fund-style ownership models.

7. High-Risk Financial Activities

Engagement in speculative financial practices such as cryptocurrency trading, derivative instruments, or high-frequency trading is typically classified as business activity. When such high-risk, regular, and profit-driven operations are conducted through a foundation, they are not treated as passive investments and may be subject to corporate tax.

Here’s the bottom line:

• Qualifying activities are built around protecting family wealth, generating passive income, and planning for the future.
• Non-qualifying activities are driven by trade, high-volume transactions, or providing services for a fee.

Eligible Structures

Selecting the appropriate structure is essential for maximizing the benefits of the UAE’s new tax regulations. Ministerial Decision No. 261 of 2024 has clarified which structures qualify under the regime.

Single-Family Offices (SFOs)

A Single-Family Office is an entity that manages a family’s investments, financial affairs, and sometimes their lifestyle needs. In the UAE, SFOs are popular with wealthy families who want to centralize control of their assets. Here’s why they matter:

• Centralized Management: They oversee investments, property, and other assets from one place.
• No Third-Party Clients: SFOs exist only to serve one family, not the general public. This keeps the structure clean and aligned with the UAE’s tax transparency requirements.
• Eligible for Tax Transparency: Because their activities are limited to managing family wealth, SFOs fit perfectly into the new rules.

Holding Companies

A holding company doesn’t run a business itself. Instead, it holds shares in other companies or owns real estate, intellectual property, or other investments. For example, a holding company might:

• Own shares in a family’s operating business.
• Hold property in Dubai for rental income.
• Own stakes in offshore investments.

Holding companies are simple. They don’t sell products or offer services; they just hold assets. That’s why they’re eligible for tax transparency when owned by a foundation and properly structured.

Foundations

A foundation is at the heart of many family structures in the UAE. It’s a legal entity without shareholders. Instead, it’s managed by a council for the benefit of the beneficiaries, usually family members.

Foundations can:

• Own SFOs and holding companies.
• Hold real estate, investments, or intellectual property.
• Act as the top-level entity in a family’s wealth structure.

When set up for long-term wealth planning and asset management, foundations are fully aligned with the UAE’s tax transparency regime.

What This Means for Offshore Companies

Many families in the UAE (and globally) have used offshore companies like those in the British Virgin Islands (BVI) or the Cayman Islands to hold their assets. These structures were popular for decades. They offered privacy, flexibility, and a way to manage family investments from a single place. But times have changed.

Regulations like the Place of Effective Management (POEM) and the OECD’s Common Reporting Standard (CRS) have made it harder to keep offshore companies hidden from local tax authorities.

If a family lives and manages their offshore company from the UAE, the UAE’s tax authority might consider that company effectively managed in the UAE. That means it could become subject to UAE corporate tax, even if the company is registered in the BVI.

This is where the new UAE foundation rules come in.

Why Transfer Offshore Companies to a UAE Foundation?

By moving ownership of an offshore company into a RAKICC Foundation, families can align with UAE tax transparency. Here’s why this matters:

• Tax Efficiency: If the offshore company is a holding company or an SPV that does only passive investing, it can now benefit from the foundation’s tax-transparent status of corporate tax at the entity level.
• Compliance: A UAE-based structure shows regulators and banks that the family is serious about transparency and governance.
• Simplification: Instead of managing multiple offshore entities, families can consolidate under one umbrella, with clear governance and succession planning.
• Asset Protection: UAE foundations offer a strong legal framework to protect family wealth from disputes, creditors, and unforeseen challenges.
• Succession Planning: Foundations make it easy to pass wealth to the next generation. With clear governance documents and legal structures in place, families can avoid disputes and ensure their legacy is preserved.
• Global Recognition: The UAE has signed tax treaties with many countries. This helps families avoid issues like double taxation or harsh foreign tax rules. It also makes it easier to open bank accounts, buy assets abroad, or partner with global investors.

How EmaraTax and Digital Filings Fit In

The UAE’s new EmaraTax platform is designed to simplify the process and ensure seamless compliance with tax regulations.

What Is EmaraTax?

EmaraTax is the UAE’s official online platform for managing tax registrations, filings, payments, and more. It’s built to help individuals, businesses, and now family foundations stay compliant.

With EmaraTax, families can:

• Register their foundations and subsidiaries for tax purposes.
• Apply for tax-transparent status if they meet the conditions.
• File annual returns and manage payments.
• Keep records and documents organized in one place.

How Foundations Use EmaraTax

Here’s a simple example:

• A family sets up a RAKICC Foundation and wants tax transparency.
• They apply through EmaraTax, submitting details about the foundation’s activities, beneficiaries, and governance.
• If approved, the foundation receives a tax transparency certificate.

How EZONE Can Help

At EZONE, we streamline the process of creating RAKICC Foundations and related entities. We handle everything from incorporation and governance documentation to EmaraTax compliance and structuring advice. Our goal is to ensure your assets are protected, your family’s future is secure, and your business is positioned for cross-border success.

Take the Next Step with Confidence

With a favorable legal environment and cutting-edge tools like EmaraTax now live, there’s never been a better time to set up your foundation.

Book a free consultation with our team at EZONE today. We’ll help you navigate the process and design a structure tailored to your personal and financial goals.

You might be interested in reading more about:

• UAE Foundations vs Holding Companies for Property Ownership
• UAE Offshore Holding Company or Foundation for Asset Ownership

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