Do Family Foundations Come Under The Corporate Tax Regime in the UAE?
In the heart of the UAE's philanthropic landscape lies the concept of family foundations, which empower wealthy families to make impactful contributions to charitable causes. These foundations perform various activities like receiving, holding, managing, and investing funds and assets associated with savings or investments for the benefit of individuals or families for future generations. These bodies could potentially be seen as independent juridical persons, and therefore, questions about corporate tax obligations often arise. This blog aims to unravel the intricate way in which family foundations are taxed under the corporate tax law in the UAE.
What are Family Foundations?
A family foundation is a specialized type of charitable organization created and funded by a family or a group of individuals who are passionate about giving back to the community. These foundations are established with the primary objective of supporting various charitable causes, ranging from education and healthcare to environmental conservation and social welfare.
Are Family Foundations Subject to Corporate Tax?
According to the prevailing corporate tax law in the UAE, family foundations that solely engage in charitable and philanthropic activities are granted an exemption from corporate tax (though they are still subject to corporate tax) if they meet certain criteria laid out under Article 17 of the law, which would recognize the foundation or trust as an incorporated partnership, whereby all the provisions applicable to such an entity would be applicable. This indicates that if a family foundation's operations are focused on advancing noble causes and contributing positively to society, it will not have to pay corporate tax to a certain extent. Therefore, family foundations need to seek the services of accredited tax consultants like CDA to stay compliant with tax regulations and establish their corporate tax exemption status.
For family foundations to fully qualify for UAE corporate tax exemption, the foundation must make an application to the FTA to be treated as an unincorporated partnership and meet certain conditions as stated before:
- The Family Foundation should be established for the benefit of natural persons (identifiable or unidentifiable), the public, or both.
- The principal activity of the Family Foundation is to receive, hold, invest, and disburse, i.e., manage assets or funds associated with savings or investments.
- The Family Foundation should not engage in any activity that would be considered a Business Activity that is subject to tax, even if its founder or any of its beneficiaries were to undertake such an activity.
- The Family Foundation’s primary or fundamental objective should not be the avoidance of Corporate Tax.
- Any further conditions that may be prescribed by FTA or the ministry.
If the above conditions are met, the unincorporated partnership will be considered tax transparent and not a taxable person under the CT Law. However, there is a caveat: if a family foundation begins to engage in commercial activities or generates income through investments, its tax status could undergo a significant shift, and it might find itself subject to corporate tax obligations.
In such a scenario, the Family Foundations should expect to be treated as taxable entities and should register on the Emara Tax Platform to file annual tax returns to the FTA in due course. This does not mean that any revenue or profit generated by the foundation will necessarily be taxed at 9%, but each foundation will need to seek the assistance of tax experts such as CDA to assess whether or not their revenue or profit could be treated as taxable income and/or qualifying income under the applicable law.
In the ever-evolving landscape of philanthropy, family foundations play a pivotal role in the UAE's pursuit of positive societal change. While the prospect of corporate tax might seem exhaustive, it's important to remember that adherence to the primary mission of charity and philanthropy can pave the way for tax exemption under the CT Law. By staying committed to noble causes and wisely managing any commercial activities, family foundations can continue to be powerful agents of positive change in the UAE.
Therefore, as with any legal and financial matter, seeking guidance from experts like CDA who are well-versed in UAE tax laws can provide the family foundations with the assurance they need to navigate the complex terrain of corporate taxation.
Why choose us?
CDA, being one of the leading accounting and auditing firms in UAE has a team of the best tax experts who can meet your corporate tax needs and enable you to identify the possible tax exemptions for your firm in UAE by staying compliant with all the regulations under the new tax regime. By hiring our tax experts, you can get your firm on the same page with the FTA and file taxes and returns on time without any delay. To know more about our premium services, contact our team now