In May 2025, the FTA published its definitive guide on the corporate-tax treatment of “Family Foundations, trusts and similar entities” under the UAE Corporate Tax regime (the “Family Foundations Guide”).
One of the most important clarifications is that the definition of a qualifying “Family Foundation” under Article 17(1) is broad – and can include foundations or trusts established outside the UAE. In other words: foreign foundations or foreign trusts may be eligible, provided they satisfy the required conditions.
For global families with multi-jurisdictional holdings, this opens up a powerful opportunity: international flexibility, cross-border structuring, and potentially fiscal transparency and tax-optimisation – all without forcing a re-domiciliation to the UAE.
What the Guide Says: Foreign Entities Can Qualify
– Wide Definition
The Guide defines a “Family Foundation” to include any foundation, trust or “similar entity” used for family wealth management, not only local UAE foundations.
This means foreign foundations/trusts can apply – there is no requirement that the entity be formed under UAE law.
– Automatic Transparency for Certain Trusts
Unincorporated trusts established under recognised free-zone frameworks (e.g. Dubai International Financial Centre – DIFC, Abu Dhabi Global Market – ADGM) are treated as fiscally transparent by default.
That means their income (e.g. rental income, capital gains) flows through to beneficiaries – avoiding corporate-tax liability at the trust/foundation level.
– Option for Incorporate Entities
Even if the foreign structure has a separate legal personality (e.g. a foundation or incorporated trust), it may still apply to be treated as fiscally transparent – provided it meets the conditions of Article 17(1).
The Conditions to Qualify – The “Gatekeepers”
To benefit from the “transparent treatment” (i.e. not being taxed at the entity level), the foundation/trust must satisfy all of these:
- Beneficiary Condition — Beneficiaries must be identifiable natural persons and/or public-benefit entities.
- Principal Activity Condition — The entity’s main purpose must be passive: holding, managing, investing or distributing assets/funds (not active trade or business).
- No Business Activity Condition — It must refrain from engaging in commercial or business activity that a natural person would need a licence to carry out.
- No Tax-Avoidance Purpose — The foundation/trust’s fundamental objective must not be tax avoidance.
- If public-benefit entity is a beneficiary — Additional distribution/timing rules apply.
The Guide also supports multi-tier structures: a foreign foundation can wholly own subsidiaries or holding companies; provided every layer meets the relevant conditions, the transparency can “pass through” the structure.
Should You Re-domicile to the UAE – Or Keep Your Foreign Foundation/Trust?
Both options remain valid – but each has pros and cons depending on your needs, jurisdictional exposure and long-term strategy. Here’s how to think about it:
When Staying Foreign Makes Sense:
- You already have a well-structured foreign foundation/trust with governance, beneficiaries, and assets outside UAE.
- You want geographic diversification – holding assets and legacy structures outside any single legal environment.
- Your beneficiaries or assets are spread globally, reducing reliance on a single jurisdiction.
- You wish to avoid the administrative cost or process of re-domiciliation – the May 2025 Guide gives you a compliance-legal path without restructuring.
- Your foundation/trust meets all Article 17 conditions and you can prove substance when required: passive activity, identifiable beneficiaries, no business trading, clean purpose.
Result: You may achieve tax-transparent status for UAE-source income (rental, real estate capital gains, dividends, etc.) without moving the foundation.
When Re-domiciliation or Setting Up a New UAE Foundation Is Preferable
- You value the legal certainty and substance of onshore UAE regulation – especially for banking, mortgages, compliance, and transparency.
- You want to centralize multiple assets (UAE real estate, global investments, business interests) under one, UAE-regulated vehicle.
- You anticipate cross-border estate planning, succession, and inheritance issues, especially where beneficiaries live in or move through the UAE.
- You require bank financing, mortgages or local regulatory compliance – many UAE banks and regulators prefer local (DIFC/ADGM) foundations over foreign trusts.
- You want to streamline governance, compliance, and reporting under a single jurisdiction instead of juggling multiple foreign regimes.
Result: A properly structured UAE-based Family Foundation (or one in a trusted free zone) gives clarity, bank-friendliness, and robust compliance records – which may outweigh the benefits of a foreign foundation over time.
What This Means for Families & Investors – And Why Knightsbridge Group Recommends Review
For internationally mobile families, real-estate investors, and entrepreneurs with cross-jurisdictional exposure, the May 2025 FTA guidance provides real structural flexibility:
- You no longer need to re-incorporate or re-domicile to benefit from UAE’s tax transparency.
- Foreign foundations/trusts may now confidently hold UAE real estate, investments, and corporate assets – provided they meet Article 17 conditions.
- Multi-tier holding structures can be retained, ensuring continuity of legacy, governance, and family-office architecture across borders.
- If desired, you can re-domicile or set up a UAE-based foundation later – without having lost the benefits of early structuring.
At Knightsbridge Group, we recommend that globally diversified families and investors review existing foundation/trust structures in light of this guidance. With minor adjustments (or sometimes none at all), many can qualify for full tax transparency – preserving legacy, minimising tax, and staying compliant.
Our team can help you:
- Map your existing structure against Article 17 conditions
- Assess whether a foreign foundation/trust qualifies
- Prepare and submit applications (if required) for transparency status
- Provide guidance on whether re-domiciliation or a fresh UAE foundation is optimal
- Implement substance, governance, and compliance safeguards
- Advise on multi-tier ownership, real estate, and corporate holdings
Conclusion
The May 2025 “Taxation of Family Foundations” Guide marks a paradigm shift. By allowing foreign foundations and trusts to qualify – under clear, structured conditions – the UAE has opened a door for global families seeking flexible, compliant, tax-efficient wealth structures without requiring relocation or re-domiciliation.
But with flexibility comes responsibility. To benefit, you must ensure your foundation or trust is properly structured, documented and compliant – especially around passive-income, no-business-activity, beneficiary transparency, and governance.
For many global families, this represents the best of both worlds: the security and tax advantages of UAE structures – with the geographic, legacy and regulatory diversification of offshore foundations.
At Knightsbridge Group, we stand ready to guide you – whether you keep your existing foundation abroad, or decide to establish a new UAE-based structure. Either way, you now have a clear, compliant and optimised path forward.
