The UAE Federal Tax Authority (FTA) has issued important clarifications regarding the Corporate Tax treatment of family wealth management structures. This development has wide-ranging implications for Single Family Offices (SFOs), Multi Family Offices (MFOs), Family Foundations, holding companies, and Special Purpose Vehicles (SPVs). Families, wealth managers, and legal advisers should urgently review their structuring and compliance.
Key Developments
- Article 17 of Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 261 of 2024 clarify which entities may seek “tax transparency.” This primarily impacts dedicated wealth management frameworks—foundations, trusts, holding companies, SPVs, SFOs, and MFOs. The clarification applies both to existing and newly established structures.
- Eligible family foundations and wholly owned chains of SPVs and holding companies can elect tax transparency. If approved, the structure (except for certain management entities) is not treated as a Taxable Person for Corporate Tax purposes; income passes through to the beneficiaries/family members, who are generally exempt if investment returns are not tied to business activity over AED 1M per year.
- SFOs and MFOs face different outcomes. Entities regulated as Free Zone Persons and performing qualifying activities (with regulatory oversight) may access the 0% tax rate. Others must pay regular Corporate Tax, even in free zones, if they lack regulatory approval.
Scenario-Based Modeling
- Scenario 1: Approved Tax Transparency Election
A foundation, along with its wholly owned SPVs and holding companies, applies for and receives tax transparency status. No Corporate Tax is payable at the entity level. Only non-qualifying management entities (such as SFO/MFOs not under regulatory supervision) pay normal tax rates. - Scenario 2: No Tax Transparency Election
Where eligible entities fail to elect, or do not qualify for, transparency status, standard Corporate Tax applies to every company in the structure. Free Zone Person benefits are restricted to those with proper licenses and regulatory oversight; all other entities in the chain are taxed.
Practical Examples
Example 1: SFO Held Directly by Foundation
- A DIFC foundation (FFA) owns an SFO, a holding company, and two SPVs.
- FFA, HoldCo, and SPVs qualify for tax transparency; none pay Corporate Tax.
- The SFO, not under DFSA oversight, remains a Taxable Person and pays Corporate Tax on its income. Family members receive investment returns tax-free.
Example 2: SFO Held Directly by Family Members
- Foundation (FFB) in ADGM owns HoldCo and SPVs, while the SFO is held by family members.
- Tax transparency applies to foundation holdings. The SFO, unregulated by FSRA, pays Corporate Tax. Family member investment returns not linked to business activity are untaxed.
Example 3: SFO Owns Underlying Investments
- DIFC foundation (FFC) owns an SFO, which in turn owns HoldCo and SPVs.
- SFO cannot access a 0% rate for management fees unless it is a regulated Free Zone Person. HoldCo and SPVs may be tax transparent if the foundation qualifies. Family member distributions remain untaxed.
Example 4: Regulated MFO Instead of Unregulated SFO
- DIFC foundation (FFD) owns HoldCo and SPVs, with an MFO subject to DFSA regulation.
- MFO qualifies for a 0% rate for wealth management services. Foundation and underlying entities may be tax transparent if eligible. Family members are generally exempt from tax unless the investment activity is commercial and exceeds AED 1M per year.
Actionable Recommendations
- Review every foundation, holding company, and SPV against Article 17 tax transparency criteria. Apply where eligible.
- Ensure SFOs/MFOs pursuing the Free Zone 0% rate maintain oversight, licenses, and compliance with regulatory standards.
- Model structure outcomes under both transparent and standard tax regimes—consider local entity tax, dividend exemptions, and cross-border participation rules.
This clarification presents both opportunities and new risks for family wealth management in the UAE. Proactive structuring, transparency elections, and regulatory compliance are vital to maximize tax efficiency and multi-generational wealth protection. Reach out to us if you want to discuss further.
