The UAE’s introduction of a 9% corporate tax regime in 2023 marks one of the biggest shifts in the region’s financial landscape. For high-net-worth families in Abu Dhabi, the new tax rules may provide new challenges, but they also open up new opportunities, particularly when it comes to wealth management, protecting family businesses and planning for future generations. Understanding how corporate tax applies to family foundations, trusts and other wealth is now essential for preserving long-term prosperity.
In this article, we’re going to cover how:
- The UAE’s introduction of a 9% corporate tax presents both challenges and opportunities for high-net-worth families in Abu Dhabi, necessitating strategic wealth management.
- Family foundations can play a crucial role in asset protection, succession planning and tax efficiency under the new corporate tax landscape.
- Properly structured, foundations can help families navigate tax challenges and preserve wealth, provided they qualify for exemptions under Article 17(1) of the UAE Corporate Tax Law.
What is a Family Foundation?
A family foundation is a legal structure designed to hold and manage family wealth, often spanning multiple generations. Unlike a company, its main purpose is asset protection, succession planning and ensuring smooth inheritance transfer.
In Abu Dhabi, many families use foundations to consolidate assets, including businesses, real estate and investments, under one umbrella. This helps avoid disputes, makes decision-making easier and secures wealth against external risks. Properly structured, a foundation can also help families navigate the UAE’s tax landscape.
Conditions to Qualify as a Family Foundation: Article 17(1)
Under Article 17(1) of the UAE Corporate Tax Law, family foundations can be treated as exempt entities if they meet specific conditions. These include being established for legitimate family or charitable purposes, ensuring that beneficiaries are clearly defined and not engaging in unrelated commercial activities.
The benefit of qualifying as an exempt foundation is significant. It allows families to safeguard assets within the foundation without subjecting them to corporate tax, provided conditions are carefully met. For example, an Abu Dhabi family business transitioning into the next generation might use a foundation to centralise ownership, ensuring the process goes far more smoothly while minimising tax exposure.
Corporate Tax Implications for Family Foundations
Not all foundations automatically qualify for exemption. If a family foundation is considered an unincorporated partnership under UAE law, its income could be taxable. This depends on how the foundation is structured, the type of assets it holds and the nature of its activities.
Consider two scenarios:
- A family directly owns a real estate portfolio under their personal names. Rental income would generally fall under the scope of corporate tax.
- The same portfolio is transferred into a properly structured family foundation that qualifies for exemption. In this case, the corporate tax burden could be reduced or eliminated.
This difference highlights why careful planning is essential. The wrong structure could expose families to unnecessary tax liabilities, while the right one can preserve wealth for decades to come.
Foreign and Multi-Tier Structures
Abu Dhabi families often hold assets across borders, using offshore holding companies or tiered structures. In the past, these were considered a highly flexible solution, but the UAE’s new corporate tax rules have changed things somewhat.
Foreign or multi-tiered structures may now attract additional compliance obligations, potential double taxation and higher scrutiny from tax authorities. For example, you may assume that setting up a foreign holding company to manage investments is efficient, but compared to a UAE-based family foundation, it may introduce greater risk and complexity under the new regime. Families must carefully weigh the trade-offs between perceived tax benefits and regulatory challenges.
Strategies to Protect Abu Dhabi Family Wealth under Corporate Tax
For families looking to safeguard wealth, a multi-layered strategy is probably the best. Foundations and trusts remain central tools, providing asset protection and intergenerational continuity. Tax residency planning is equally important, ensuring that family members and entities are structured in line with UAE tax requirements.
Succession planning also requires renewed attention. Drafting proper wills ensures wealth transfer aligns with both family intentions and legal frameworks in the UAE. Alongside this, choosing the right wealth manager can make all the difference, helping families balance compliance with growth opportunities.
Decision Framework for Families
Abu Dhabi families should consider a foundation when they own multiple businesses or properties, want to avoid succession disputes or seek exemption from corporate tax under Article 17(1).
When is corporate tax liability unavoidable? In cases where entities are run as active businesses without qualifying exemptions, families should expect taxation at the 9% rate and plan accordingly.
A simple checklist for families:
- Assess whether your current structure meets the exemption criteria.
- Review all foreign and multi-tier entities for compliance risks.
- Update wills, succession documents and governance frameworks.
- Seek professional advice on residency planning and foundation setup.
Make the Most of the Opportunity
The introduction of corporate tax in the UAE is a turning point for Abu Dhabi family wealth. While it introduces new responsibilities, it also creates an opportunity for families to reassess their structures, strengthen succession planning and ensure long-term protection of their assets.
Key takeaways:
- Not all family foundations qualify for tax exemption, highlighting the importance of careful structuring to avoid unnecessary tax liabilities.
- Abu Dhabi families should evaluate foreign and multi-tier structures for potential compliance risks under the new tax regime.
- Adopting a comprehensive strategy that includes foundation setup, succession planning and compliance management is vital for safeguarding family wealth amidst changing tax regulations.
At MHG Wealth, we specialise in guiding families through these transitions. From establishing compliant family foundations to structuring investments and planning inheritance, our experts ensure your wealth is preserved for generations.
Learn more about wealth management in Abu Dhabi and speak to our advisors about a personalised strategy for your family.
FAQs
What is the impact of UAE Corporate Tax on family foundations?
Foundations may qualify as exempt, but only if they meet the requirements of Article 17(1). Otherwise, income may be taxable.
How does Article 17(1) affect the tax treatment of a family foundation?
It provides conditions under which a family foundation can be treated as an exempt entity, protecting it from corporate tax.
Can a family foundation be taxed as an unincorporated partnership?
Yes, if it doesn’t meet exemption requirements, it may be treated as an unincorporated partnership and subject to tax.
What risks do foreign and multi-tier structures pose under UAE corporate tax?
They can introduce compliance challenges, double taxation risks and higher regulatory scrutiny compared to UAE-based structures.
How can Abu Dhabi families protect their wealth against new tax rules?
Families in Abu Dhabi can protect their wealth against new tax rules by using foundations, trusts, wills and tax residency planning supported by professional wealth management advice.
