Family Trusts in the UAE: What Are They and What Tax Benefits Do They Offer?
| A family trust is an independent organizational and legal form of a legal entity designed to protect, manage, and transfer assets in the interests of a family or specific beneficiaries. The main activities of a family trust include receiving, storing, investing, distributing, or otherwise managing assets or funds related to savings or investments. |
One of the advantages of a family trust is the possibility of applying for an exemption from corporate tax in the UAE. Within the framework of a family trust, taxation occurs not at the level of the trust itself, but at the level of the founder and beneficiaries, provided they are individuals – in which case the corporate tax exemption applies.
Note: Individuals are exempt from corporate tax in the UAE if their activities are not considered business activities.
The benefit can only be applied when the trust obtains the status of a tax-transparent unincorporated partnership. To achieve this status, it must meet all of the following conditions:
- The trust must be created in the interests of identified or identifiable individuals (e.g., family members) or socially beneficial organizations (or both).
An identified individual is a person explicitly named in the trust’s founding documents (e.g., the trust deed) or other documents as a beneficiary.
An identifiable individual is a person not explicitly named in the founding documents but belonging to a group of beneficiary individuals, such as a child or grandchild of the founder, including those who may not yet be born at the time the trust is established.
A socially beneficial organization – while not defined by legislation – could refer to an organization created for the purpose of promoting societal welfare, engaging in charitable activities, or implementing initiatives in corporate social responsibility.
- The main activity of the trust: receiving, storing, investing, distributing, or otherwise managing assets or funds related to savings or investments.
- The purpose of creating the trust must not be to evade corporate tax (this condition is considered fulfilled if the condition below is met).
- The trust does not engage in business activities that, if undertaken directly by the founder or the beneficiaries, would be subject to corporate taxation.
Note: Investment activities in securities, real estate for personal purposes, or leasing residential property are not considered business activities.
Registration occurs in specialized jurisdictions such as:
- DIFC (Dubai International Financial Centre);
- ADGM (Abu Dhabi Global Market);
- RAK ICC (Ras Al Khaimah International Corporate Centre).
If a family trust has a legal entity (e.g., a subsidiary) that it fully owns, this legal entity can also apply for the status of an unincorporated partnership. To do so, it must meet both conditions:
- It must be fully owned and controlled by the trust (either directly or through a chain of other entities that already hold such status).
- It must meet the general requirements for an unincorporated partnership as described above.
In this article, REVERA’s lawyers have outlined the grounds for applying the preferential tax rate. If this topic interests you, please contact us at y.zadesenskaya@revera.legal or @revera_pc, and in the next article, we will explain the procedure for obtaining the status of a tax-transparent unincorporated partnership in more detail.
Author: Yaroslavna Zadesenskaya
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