Can a family business run through several licences be taxed as one?

Family Foundations Q Can a family company or a private company that invests in shares for the benefit of a natural person be a Family Foundation for the purposes of the Corporate Tax Law? A No, a Family Foundation is any foundation, trust or similar entity that meets the conditions of Article 17 of the Corporate Tax Law13. A “similar entity” means an entity that has a similar legal structure or character to a foundation or trust, and would, therefore, exclude a limited liability company or a private company, but can include an incorporated trust. Q Can a Family Foundation, whose beneficiaries are natural persons, qualify for tax-transparent status if it carries on an activity of real estate investment14? A Yes, but only if the real estate investment is not carried on through a licence (and is not required to be conducted through a licence), as such real estate investment would not be a taxable business activity if carried on by a beneficiary of the Family Foundation who is a natural person. Q A juridical person that is wholly owned and controlled by a Family Foundation that is treated as an Unincorporated Partnership can itself make an application to the FTA to be treated as an Unincorporated Partnership15. Is this application possible if the juridical person is wholly owned by more than one such Family Foundation? A Yes, a juridical person can be “wholly owned” by more than one Family Foundation. The ownership condition would be met if the juridical person is only owned by Family Foundations, and all these Family Foundations are treated as Unincorporated Partnerships. Free Zones – Qualifying Free Zone Persons Q Can a discretionary trust, Unincorporated Partnership or other such body that is not a juridical person be a Qualifying Free Zone Person? A No, a Qualifying Free Zone Person must be a juridical person16, which means, broadly, an entity with a separate legal identity, and includes branches. It does not include a natural person or an agreement between persons. Q If a Taxable Person is based in a Free Zone and has a branch in another Free Zone, should the conditions for a Qualifying Free Zone Person be assessed for each location separately? A No, a branch of a Taxable Person does not have a separate legal identity, so if a Taxable Person has branches in one or more Free Zones, then the conditions for a Qualifying Free Zone Person are applied to the Free Zone branches collectively as one Taxable Person17. Each activity conducted by the Taxable Person should be assessed independently to determine whether it is a Qualifying Activity and the adequate substance test18 should be assessed separately for each activity for the Free Zone Person 13 Article 1 of the Corporate Tax Law 14 Article 17(1)(c) of the Corporate Tax Law 15 Article 17 of the Corporate Tax Law and Article 5(2) of Ministerial Decision No 261 of 2024 16 Article 1 of the Corporate Tax Law 17 Article 3(1) of Cabinet Decision No. 100 of 2023 18 Article 8(1) of Cabinet Decision No. 100 of 2023 4

managing investments and not to conduct a Business or Business Activity on a commercial basis. As mentioned in Section 4.3, in respect of a natural person, Turnover derived from Wages, Personal Investment income and Real Estate Investment income is not considered to be derived from a Business or Business Activity. The foundation, trust or similar entity may, therefore, undertake an activity that would be considered Personal Investment and/or Real Estate Investment had it been undertaken by the natural person beneficiaries directly (see Section 4.3 for the definition of Personal Investment and Real Estate Investment activity.) Example 1: Foundation conducting activity that would have constituted a Business or Business Activity for a natural person The J Foundation, a juridical person, holds and manages real estate properties which consist of several residential units in the UAE that are leased to tenants and a motel building that the J Foundation operates. Mr J and Mrs J each have a 50% beneficial interest in the J Foundation. The residential units are rented out without any existing or required Licence. Hence, in respect of these properties, the “no Business Activity” condition is met. The operation of the motel would have required a Licence if the motel was being operated by Mr J and Mrs J directly. Thus, in such case the activity would have constituted a Business or Business Activity (i.e. it would not have been a Real Estate Investment activity) and, therefore, the “no Business Activity” condition is not met. The J Foundation does not meet all the conditions to be a Family Foundation and, therefore, cannot apply to be treated as an Unincorporated Partnership. 5.4. No tax avoidance condition The main or principal purpose of a Family Foundation should not be for the avoidance of Corporate Tax.41 This condition will be met where a Family Foundation is used for the purposes envisaged by the Corporate Tax Law, namely to receive, hold, invest, disburse or/and manage assets for the benefit of individuals or charitable organisations. 41 Article 17(1)(d) of the Corporate Tax Law. Corporate Tax Guide | Taxation of Family Foundations | CTGFF1 20