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Foundations

UAE Family Foundation and GIFT City FIF for Indian Expats

An Indian expat in the UAE with meaningful Indian investments has two strong structures to consider: a UAE family foundation and a Family Investment Fund in GIFT City. Used together, they can take most Indian investment income out of Indian tax. Each comes with conditions that decide whether it works.

By Suril Mehta, CA, Partner, K C Mehta & Co LLP | KCM Consultants LLC, Dubai and Yog Bakshi, Manager, M&A

Published 11 November 20267 min

Key Takeaways

  • A UAE family foundation can hold Indian securities and claim the India-UAE treaty, so the family does not each need UAE tax residence. Its management must be wholly in the UAE.
  • In the UAE, a foundation is taxed like a company unless the FTA approves it as tax transparent under Article 17.
  • A Family Investment Fund (FIF) in GIFT City needs a corpus of USD 10 million within three years. Its income can arguably be covered by the IFSC deduction for 20 years out of 25.
  • Money is harder to take out of an FIF than out of a foundation. Lending to the FIF, rather than holding equity, helps.
  • FEMA, the fair market value rules, GAAR and substance must be worked through for every route.

Structure 1: a UAE family foundation

The family transfers Indian securities to a UAE family foundation, which claims the India-UAE treaty on the income:

Income from India Treaty position for a UAE resident foundation
Dividends India’s tax capped at 10%
Interest India’s tax capped at 12.5% (5% where a bank is the beneficial owner)
Royalties India’s tax capped at 10%
Gains on shares of Indian companies India can tax (Article 13(4))
Gains on other securities: mutual funds, AIF units, debentures including compulsorily convertible debentures Taxable only in the UAE, arguably (Article 13(5))

The real pull. The foundation, not each family member, is the treaty resident. That removes the need for individuals to hold UAE tax residence themselves, which matters when a family’s residence may change.

The catch: management in the UAE. The foundation’s place of effective management must be in the UAE, not merely outside India. Under the treaty, an entity is a UAE resident only if it is managed and controlled wholly in the UAE. If key decisions are made in India, the foundation loses the treaty and can be treated as resident in India.

UAE tax. A UAE foundation is taxed at 9% like a company unless it meets the conditions in Article 17 of the Corporate Tax Law and the FTA approves it as tax transparent. Among the conditions, its beneficiaries must be identified or identifiable individuals or public benefit entities, its principal activity must be holding and managing savings or investments, and it must not do anything that would be a business if an individual did it. See How a UAE foundation closes the gap.

The same treaty result can be had through a UAE company, but a foundation gives far more flexibility over who controls it: a founder, a council and a guardian. And India will likely treat the foundation as a foreign company, so it does not escape Indian rules that tax a resident founder: see Understanding UAE Foundations: Beyond the Hype.

Structure 2: a Family Investment Fund in GIFT City

A Family Investment Fund is a self-managed fund for a single family under the IFSCA (Fund Management) Regulations, 2022. A non-resident can set one up in GIFT City. It needs a corpus of at least USD 10 million within three years.

Tax. The Finance Act, 2026 extended the IFSC unit deduction, now in section 147 of the Income-tax Act, 2025, to 20 consecutive years out of 25. On one reading the deduction covers an FIF’s capital gains, interest and dividends, so they are exempt in India for that period. There are arguments that the exemption does not fully apply to an FIF, and few advisers rely on it without a ruling. See GIFT City AIF vs Offshore Funds for the same question for AIFs.

No POEM test. The FIF is an Indian vehicle, so it does not need management outside India. That is a real advantage over a foundation.

The catch: getting money out. The money is effectively locked in the FIF. Dividends paid by an FIF are taxed in India: at 20% plus surcharge and cess without a treaty, or 10% to 20% under one. Debt helps, because interest paid by an FIF is arguably exempt in India. That interest is usually taxable where the lender lives.

Structure 3: the hybrid

The foundation lends to the FIF. The FIF claims its exemption on its investment income, and money comes back to the foundation mainly as interest, which is not taxed in India and, for an approved foundation or a free zone company, not taxed in the UAE either. Done properly, this can bring Indian tax close to nil.

UAE foundation GIFT City FIF Foundation lending to FIF
Indian tax on investment income Treaty rates; gains on Indian shares taxable Nil for 20 of 25 years, on one reading Nil in the FIF, on one reading
UAE tax 0% if approved under Article 17; otherwise 9% Not applicable Interest to the foundation, 0% if approved
Management test Must be wholly in the UAE None Foundation must be managed in the UAE
Getting money out Distributions to beneficiaries not taxed in India Dividends taxed in India Mainly interest, not taxed in India
Minimum size None USD 10 million within three years USD 10 million in the FIF
Main risk POEM and treaty access Scope of the IFSC deduction Both, plus transfer pricing on the loan

Caveats for every route

  • FEMA. Transfers of Indian securities to a foreign foundation, and investment into an FIF, must be worked through under FEMA. Even non-repatriable holdings can generally be transferred, with the right approvals and steps.
  • Fair market value rules. Transfers for less than market value can be taxed under the fair market value rules of the Income-tax Act, 2025 (formerly sections 50CA and 56(2)(x)). They can be planned for.
  • GAAR, treaty eligibility and substance. Any structure has to pass India’s general anti-avoidance rules and the treaty’s anti-abuse tests, and needs real substance where it claims to be resident.

This is not structuring advice. The right answer depends heavily on the family’s facts.

FAQ

Can a UAE foundation claim the India-UAE treaty?
Generally yes, if it is a UAE resident under the treaty, which needs its management and control to be wholly in the UAE.

What is the minimum size of a GIFT City Family Investment Fund?
A corpus of USD 10 million within three years.

Is an FIF’s income exempt in India?
Arguably yes, under the IFSC deduction for 20 years out of 25. There are contrary arguments, so it should be taken as a reading, not a settled position.

Why lend to the FIF rather than invest equity?
Because dividends paid by an FIF are taxed in India, while interest paid by it is arguably exempt. Lending lets money come back with less Indian tax.

Talk to KCM about family structures for Indian investments: contact us.

Sources and last checked: 10 November 2026

This is not to be construed as legal advice. The actual advice will depend upon the facts and will have to take into consideration the case-specific facts and the anti-abuse regulations.

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