UAE Law and Practice Contributed by: Ildar Yuvakaev, Ruslan Akhmetov, Olga Serova and Daiana Ubushaeva, Consigliere Group
3.2 Recognition of Trusts Trusts are fully recognised and respected in the com - mon-law free zones, the DIFC and ADGM, which have modern trust statutes, specialist courts and “firewall” provisions that prevent foreign forced heirship or heir - ship judgments from being enforced where they con - flict with local trust law. Federally, the UAE has introduced an onshore civil law-style trust regime through Federal Decree Law No 19 of 2020 on Trusts, updated by Federal Decree Law No 31 of 2023, which for the first time embeds the trust concept into the mainland legal system. How - ever, commentary notes that this framework is still relatively new and largely untested for sophisticated cross-border succession planning, so most high-end structures continue to rely on DIFC/ADGM trusts with onshore assets held via an SPV or foundation. In the DIFC, express trusts are governed by DIFC Trust Law No 4 of 2018, which codifies trustee duties of loyalty, proper purpose, prudence and avoidance of unauthorised profits; corporate trustees often operate under DFSA financial services licences and must also comply with UAE AML/CFT legislation. ADGM trusts fall under the ADGM Trusts (Special Provisions) Regulations 2016, which impose statutory fiduciary duties on trustees and foundation council members and sit within a regulated Company Service Provider (CSP) framework for non exempt SPVs and foundations. Practical limitations also remain around the interac - tion with mandatory Sharia inheritance rules for Mus - lim settlors and the willingness of onshore courts to uphold distributions that significantly depart from fixed shares, making careful choice of governing law, jurisdiction and asset holding chain essential. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions The UAE tax implications for a fiduciary or beneficiary of a foreign trust or foundation depend primarily on the classification of the structure under UAE Corporate Tax Law.
Where a foreign trust or foundation is treated as a taxable person (ie, a non-transparent entity), any UAE- sourced income is taxed at the level of the entity itself. In such cases, a fiduciary acting in that capacity does not generally have a separate UAE tax liability, and distributions to beneficiaries are typically not subject to further UAE corporate taxation at the beneficiary level, subject to the specific nature of the income and applicable rules. Alternatively, where a foreign trust or foundation is treated as fiscally transparent (eg, as an unincorpo - rated partnership for UAE corporate tax purposes), the tax attributes of the structure are attributed to its beneficiaries or participants. In such cases, a UAE tax resident fiduciary or beneficiary may be required to account for their proportional share of income derived from UAE sources. For natural persons as beneficiaries, corporate tax applies only where the individual is conducting a busi - ness activity. Corporations as beneficiaries are within the scope of UAE corporate tax by default, provided they are incorporated in the UAE or effectively man - aged and controlled from the UAE, subject to limited exemptions and special regimes (including qualifying free zone regimes and exempt persons). 3.4 Tax Consequences of Fiduciary and Beneficiary Roles A UAE citizen or resident receiving distributions from a foreign trust, foundation or similar structure generally has no UAE tax exposure. The UAE does not impose personal income tax, wealth tax or tax on capital receipts, and individual investment income is outside the scope of corporate tax. Any tax exposure typically arises in another jurisdiction, where settlor, beneficiary or controlled-entity rules may continue to apply after relocation to the UAE. A fiduciary role raises two principal issues. First, a foreign foundation or other legal entity may become subject to UAE corporate tax if it is effectively man - aged and controlled from the UAE. A UAE-resident council member, trustee or director making strategic decisions from the UAE may create UAE tax residence or permanent establishment risks. For common-law trusts, the analysis is different, as they are generally
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