UAE Foundations for Indian and NRI Families — DIFC, ADGM, RAK ICC, FEMA, Indian Tax and Schedule FA Explained

20 September 2026 · Foundations · I. H. Khan and Associates

Foundations have become the structure of choice for Gulf-based Indian families who want their Dubai property, operating companies and investment portfolios to pass to the next generation without probate in three countries and without the informal arrangements that fall apart at the first disagreement. The UAE side is well served: DIFC, ADGM and RAK ICC each have a modern foundations law and a two-to-three-week set-up. The Indian side is where structures go wrong, and it is almost never discussed by the corporate service providers who sell them. Here are the questions we settle with every family before a charter is signed.

1. Who will be the founder?

This is the first and most important decision, and it is a FEMA question, not a tax one. A member of the family who is resident outside India under FEMA — typically the NRI who lives and works in the UAE — can endow a foreign foundation with assets held outside India without any Indian exchange-control approval. A person resident in India cannot: the Overseas Investment Rules, 2022 permit resident individuals to acquire equity in a foreign entity under the Liberalised Remittance Scheme, but a foundation has no equity capital to acquire, and a contribution to an overseas foundation or trust falls outside the automatic route. In practice it requires specific approval from the Reserve Bank, which is rarely sought and rarely given. Families in which the wealth-holder still lives in Mumbai should therefore expect the founder to be the UAE-based member, endowing assets that are already outside India, or should look at an Indian private trust for the Indian assets instead.

2. What goes into it — and what cannot

A UAE foundation is well suited to holding shares in UAE mainland, free zone and offshore companies, Dubai and Abu Dhabi property, international brokerage and bank accounts, and shares in companies in Hong Kong, Singapore, the UK or the United States. What it cannot easily hold is shares in an Indian company. India's foreign investment rules treat investment from overseas as FDI by a person resident outside India, and an overseas foundation is not among the entities that may invest under the automatic route; even where an approval route exists it is slow and unpredictable. Indian assets are usually kept out of the structure altogether and dealt with under an Indian will or private trust, with the foundation's by-laws cross-referring so that the family's succession plan reads as one document.

3. Where will the council sit?

A foundation is managed by its council. If the council members live in India and take the decisions from there, two consequences follow. Under Indian tax law a foreign entity whose place of effective management is in India is treated as an Indian tax resident, and the foundation's worldwide income becomes taxable in India at the rate applicable to foreign companies. Under UAE corporate tax the foundation's tax-transparent status also depends on it being genuinely administered as a family foundation. A council with at least one UAE-resident member, meetings held and minuted in the UAE, and bank signatories in the UAE resolve both points. We generally recommend a licensed UAE corporate services provider or a trusted UAE-resident family member as a councillor alongside the family.

4. What must Indian-resident beneficiaries disclose?

Most families have at least one beneficiary — parents, a sibling, a child studying in India — who is tax-resident in India. Any Indian resident who is a beneficiary, founder, councillor or guardian of a foreign foundation, or who has signing authority over its accounts, must report that interest every year in Schedule FA of the Indian income tax return, whether or not any income was received. The penalty for non-disclosure under the Black Money Act is ₹10 lakh for each year, irrespective of the value involved, and the disclosure obligation has been the trigger for most of the enquiries we see. The by-laws and the annual accounts of the foundation should be drafted with this reporting in mind: naming a resident beneficiary is fine, but the family must know that it creates a filing.

5. How will distributions be taxed in India?

Income accumulated inside the foundation is not taxed in India while the founder and beneficiaries are non-resident and the foundation is managed from the UAE. Distributions to an Indian-resident beneficiary are a different matter. A foundation is not a "relative" for the purposes of section 92 (56(2)(x) of the 1961 Act), so an amount received without consideration in excess of ₹50,000 in a year is taxable as income from other sources at the beneficiary's slab rate, unless the distribution can be characterised differently under the by-laws — for instance as the beneficiary's share of income already taxed, or as received on the founder's death. Where the founder has retained the power to revoke the foundation or to take back assets, the income may be taxed in the founder's hands under the revocable-transfer provisions of sections 61 to 63 if the founder later becomes resident in India. Returning NRIs are the group most exposed here, and the by-laws should be reviewed before the move, not after.

6. Will the UAE tax it?

A foundation is a taxable person under the UAE Corporate Tax Law, but a foundation established for the benefit of identifiable natural persons or for public benefit, that does not carry on a business and whose main purpose is not tax avoidance, can apply to the Federal Tax Authority to be treated as a Family Foundation — tax-transparent, so that dividends, capital gains and investment income are not taxed at foundation level, and companies wholly owned by it can share that treatment. The election is an annual compliance point, not a one-off: the foundation must remain within the conditions, keep accounts, and confirm the position on each return. Rental income from UAE property and shareholdings in operating businesses need particular care.

7. Which jurisdiction?

For a family whose principal asset is Dubai property, DIFC remains the natural choice because of its arrangements with the Dubai Land Department and the DIFC Courts. ADGM is the most economical of the two financial-centre options and is well regarded by international private banks, which matters if the foundation will hold a portfolio. RAK ICC is the lowest-cost route and works well for holding shares in UAE companies where the founder wants privacy and simple governance. Our foundations page sets out the differences in a table; the short version is that the choice follows the assets, not the fee.

8. The documents that matter more than the charter

The charter is a short public document. The by-laws — private, and the place where beneficiaries, distribution rules, the founder's reserved powers, the succession of councillors and the guardian's role are set out — are where the family's intentions live. They should be drafted together with an Indian will for any Indian assets, a DIFC or ADGM will for UAE assets not held through the foundation, and a letter of wishes. A structure with a perfect charter and an unconsidered set of by-laws is the most common thing we are asked to fix.

How we work on a foundation

We start with the family's asset schedule and residence positions, settle the FEMA and Indian tax answers above in writing, and only then choose the jurisdiction and draft the charter and by-laws with the licensed UAE provider. Ongoing, we handle the Family Foundation election, Schedule FA disclosures for resident members and the annual council minutes. Read about our foundation services or contact us for a confidential discussion.

I. H. Khan and Associates
Tax, GST and business setup advisors — Mumbai and Thane. Contact us to discuss your situation.

UAE foundations for Indian and NRI families: the FEMA and Indian tax questions to settle before you sign the charter