UAE Foundations: the Wealth Planning Tool Italian Clients Are Overlooking

What is a UAE Foundation and how does it differ from a trust

From a legal perspective, a RAK ICC foundation is a legal entity with its own separate legal personality, distinct from that of the founder and other involved parties. It is designed to hold and manage assets in accordance with the purposes set out in its charter and by-laws, within a long-term governance and succession framework.

A foundation is not typically established to carry out commercial activities. The RAK ICC framework expressly provides that any such activities must be merely ancillary or incidental to its objectives. In practice, it can act as a central governance platform for family wealth, shareholdings, real estate, financial portfolios or philanthropic projects, without being confused with the underlying operating business.

From an operational standpoint, the RAK ICC regime provides for:

• a minimum initial capital of USD 100
• the appointment of a Registered Agent
• at least two Council Members
• the possibility to appoint a Guardian in certain cases
• a limited level of public disclosure restricted to essential registry data, with the remaining documentation kept confidential except where disclosure is required by competent authorities

The 2025 RAK ICC Reforms: What Has Changed

The amendments that came into force on 31 July 2025 represent a significant development. They move in the same direction as reforms already observed in the DIFC in 2024, confirming a broader trend toward convergence among UAE regimes and alignment with international private wealth planning standards.

Enhanced cross-border protection (firewall provisions)

RAK ICC has strengthened its firewall provisions: courts are not required to recognise or enforce foreign judgments that are inconsistent with the foundation regime. The same principle extends to founders, contributors, council members, guardians and qualified recipients. In particular, succession rights arising under foreign law in respect of assets of a living person are not recognised within the RAK ICC framework.

Creditors: defined perimeter and three-year limitation period

The new rules introduce a three-year limitation period to challenge the establishment of a foundation or the transfer of assets to it. More importantly, they clarify that, where claims are upheld, remedies are limited to the specific transferred asset — or its proceeds — and do not automatically affect the entire structure. This significantly improves clarity and manageability of risk exposure.

Protection against coercion (duress)

The amendments introduce explicit protection against requests, orders or pressures from parties acting under duress or pursuant to measures outside the competent jurisdiction. Foundation stakeholders are required to disregard demands or actions that are inconsistent with the powers conferred by the charter or by-laws. This provision reinforces the internal autonomy of the structure in distressed scenarios.

Strengthened arbitration framework

While RAK ICC continues to allow the choice between DIFC Courts and ADGM Courts, the 2025 reforms significantly enhance the role of arbitration. Arbitral tribunals are granted powers equivalent to those of courts in matters relating to the administration of the foundation, including representation of minors, unborn beneficiaries or unascertained persons. For complex family wealth structures, the advantage is not only procedural but also reputational.

Clarification on assets held as trustee

The 2025 reform further clarifies that assets held “on trust” by a foundation remain subject to the terms of the trust and do not form part of the foundation’s own assets. This is a technically important point for private trustee foundation structures.

The UAE Tax Framework: Corporate Tax and Family Foundations

The UAE federal tax framework has become more articulated and, in many respects, more transparent. The Federal Tax Authority has issued guidance on the taxation of Family Foundations, clarifying that a foundation may — subject to the conditions set out in Article 17(1) of the Corporate Tax Law — apply to be treated as an Unincorporated Partnership, i.e. as a fiscally transparent entity for UAE Corporate Tax purposes.

If the application is approved, the foundation is not taxed at the entity level, and income, assets and liabilities are attributed to the beneficiaries in accordance with applicable rules. The main conditions include:

• the foundation must be established for identified or identifiable natural persons and/or public benefit entities
• its primary activity must consist of holding, investing, distributing or managing savings and investment assets
• it must not carry out activities that would constitute a commercial business if performed directly by an individual
• its principal purpose must not be the avoidance of Corporate Tax

Foreign entities — including foundations, trusts or similar structures — with a presence or nexus in the UAE may also access the same treatment, subject to meeting the relevant requirements.

The Italian Perspective: What Italian-Resident Clients Need to Consider

This is the area where Italian clients must exercise particular care — and where the difference lies between a structure that is merely attractive on paper and one that is truly sustainable.

Where the founder or beneficiaries of a UAE foundation are tax resident in Italy, a number of rules come into play which require an integrated analysis and cannot be overlooked:

• Tax monitoring (RW reporting): assets held through a foreign foundation may fall within reporting obligations, depending on the level of control and the nature of the underlying assets.
• IVAFE: the tax on foreign financial assets may apply, depending on how the foundation is classified under Italian law.
• Residence of founder and governing bodies: the location of decision-making functions may be relevant in determining the effective tax residence of the structure.
• Legislative Decree No. 139/2024: the recent reform of trust taxation in Italy introduces new criteria that, by analogy, may also influence the Italian treatment of foreign foundations.

It is precisely in this interplay — between UAE law on one side and Italian law on the other — that the quality of serious wealth planning is tested.

For Which Clients Can a UAE Foundation Be Effective?

The relevant question is not whether a UAE foundation is “better” than a trust or a holding company. The real question is: for which objectives, with which assets, across which jurisdictions, and under what family governance can it be truly effective?

In practice, a UAE foundation may be particularly suitable where there is a need to:

• create an orderly platform for holding shareholdings and investment assets
• ensure continuity in the management of family wealth across multiple jurisdictions
• separate governance rules from beneficiaries’ economic entitlement
• manage UAE real estate or structures with a substantive economic connection to the UAE
• complement or integrate existing structures (such as trusts) within a more complex wealth architecture

A Final Caution: There Are No Standard Structures

The choice of regime — RAK ICC, DIFC or ADGM — affects the legal framework, governance model, professional counterparties and, in some cases, the operational profile. In ADGM, non-exempt foundations must appoint a licensed Company Service Provider; in RAK ICC, governance is structured around the charter, by-laws, council and, where applicable, a guardian.

More importantly, where the structure interacts with Italy or other high-complexity jurisdictions from a tax and succession standpoint, the analysis must be fully integrated. Civil law, succession law, tax, reporting, residence, economic substance and international compliance must all be considered together and in coordination.