Where a holding structure for a family-owned group in the UAE stands now

A family-owned group headquartered in the UAE that built its holding architecture five years ago is operating in a materially different environment today. The rules on substance, beneficial ownership disclosure, and treaty access have all moved. The question is not whether the structure still works on paper. The question is whether it holds up when examined by a tax authority, a counterparty's compliance team, or a court asked to enforce an award or judgment across a border.

A holding structure for a family-owned group in the UAE sits at the intersection of UAE corporate and tax law, offshore holding-centre rules – typically the British Virgin Islands or the Cayman Islands – and, increasingly, Hong Kong as an intermediary hub or alternative anchor. The governing instruments include the UAE Corporate Tax Law that took effect in 2023, the relevant bilateral tax treaties, the OECD Pillar Two (the global minimum tax framework agreed under the BEPS Inclusive Framework) minimum tax rules, and the substance regimes of the offshore centres involved. Getting the structure right now requires an argument-led read of all three layers simultaneously.

This analysis sets out the commercial stakes, the cross-border legal interface between Hong Kong and the UAE, where the risk actually sits in the current environment, and the practical steps that follow from an honest assessment of a group's current position.

What is actually at stake commercially for a UAE family group?

The holding structure question for a UAE family group is, at root, a question about capital: where it sits, how it moves, and what protection it carries when something goes wrong. The chart on paper – a UAE parent over an offshore holdco over operating subsidiaries – answers none of those questions by itself.

In our cross-border practice, the principals who come to us with UAE holding-structure questions are generally facing one of three commercial situations. First, a generational transition is approaching, and the existing structure was designed for a single founder rather than for multiple beneficiaries across different jurisdictions. Second, a significant transaction – a sale, a co-investment, or a capital raise – has exposed the structure to external scrutiny, typically from a buyer's counsel or a development finance institution running a beneficial ownership (the natural person or persons who ultimately own or control an entity, as defined under AML and corporate transparency rules) check. Third, a cross-border dispute or enforcement situation has arisen, and the group has discovered that its holding entity's jurisdiction of incorporation does not offer the enforcement route it expected.

The commercial stakes are higher than they appear from inside the group. A holding structure that cannot demonstrate genuine substance in the jurisdiction it claims as its seat is not merely a compliance problem. It is a valuation problem: a buyer or investor will discount or reject it. It is also an enforcement problem: a counterparty that successfully challenges the economic reality of the holding entity can disrupt the group's entire contractual and asset-protection position.

What does the structure actually need to do? That is the first question our desk asks. The answer determines which jurisdictions belong in the architecture and which are carrying unnecessary cost and risk.

The governing framework: UAE, offshore centres, and Hong Kong

The UAE Corporate Tax Law, which took effect for most businesses with financial years beginning on or after 1 June 2023, introduced a federal corporate tax at a standard rate of 9% on taxable income above a threshold, with a 0% rate for income at or below that threshold. Qualifying Free Zone Persons (entities incorporated in a UAE free zone that meet substance and income conditions set by the UAE authorities) may continue to benefit from a 0% rate on qualifying income under a separate regime – but only if they satisfy the conditions on an ongoing basis. The introduction of corporate tax has changed the baseline analysis for any group that previously treated the UAE as a tax-neutral jurisdiction by default.

Above the UAE operating layer, most UAE family groups have historically placed an offshore holding entity – most commonly a British Virgin Islands or Cayman Islands company. Those jurisdictions have their own economic substance regimes, which require holding entities that are relevant entities under the local rules to maintain adequate substance in that jurisdiction or face reporting and penalty consequences. A pure shell that holds shares and does nothing else does not automatically satisfy the substance requirements in either the BVI or Cayman.

Hong Kong enters the analysis at two points. First, some groups have used a Hong Kong intermediate holding company to access Hong Kong's network of bilateral tax treaties, including its arrangements with the Mainland and its treaties with a growing number of countries. Hong Kong operates a territorial tax system: profits tax is charged only on profits arising in or derived from Hong Kong, at the two-tier rate of 8.25% on the first HK$2,000,000 of assessable profits and 16.5% above that. There is no withholding tax on dividends or interest paid by a Hong Kong company, and there is no capital gains tax. Second, Hong Kong's Foreign-Sourced Income Exemption (FSIE) regime – the rules governing when foreign-sourced passive income received in Hong Kong is subject to profits tax or exempt – has been amended to impose economic-substance and participation-conditions requirements. A Hong Kong holding company that receives dividends or disposal gains from an offshore entity must satisfy the FSIE conditions to maintain the exemption.

The group's counsel therefore needs to read UAE law, offshore-centre substance law, and Hong Kong tax and corporate law simultaneously. A structure that is clean in any one of those systems individually may still fail when the systems interact.

How does the cross-border interface between Hong Kong and the UAE actually bite?

The interface between Hong Kong and the UAE is more active than many UAE-based principals realise. The two jurisdictions share no bilateral tax treaty – a fact that matters when a group is trying to route income or manage withholding exposures between them. Treaty access, where it exists for the group, typically runs through a third jurisdiction: either an offshore centre with a relevant treaty network, a European intermediate holding location, or, where the income source is in the Mainland, through the HKSAR's Arrangement with the Mainland Regarding Double Taxation.

Consider the beneficial-ownership dimension. A UAE family group with a BVI holdco over a Hong Kong intermediate company needs to satisfy the beneficial-ownership analysis in at least three places simultaneously: the UAE's own Ultimate Beneficial Owner (UBO) register requirements, the BVI beneficial-ownership regime under the BVI Business Companies Act and its associated regulations, and the Hong Kong Significant Controllers Register requirement. The Significant Controllers Register has been mandatory for Hong Kong-incorporated companies since 1 March 2018. Non-compliance is not a theoretical risk; it surfaces in due-diligence processes and in regulatory inquiries.

Enforcement is the sharpest edge of the cross-border interface. If a UAE family group holds assets in Hong Kong or has a counterparty dispute with a Hong Kong or Mainland party, the route to enforcement runs through Hong Kong's courts or arbitral institutions. The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) took effect on 29 January 2024, creating a registration mechanism for effective Mainland judgments in Hong Kong and vice versa. That regime extends the reach of cross-border enforcement in ways that were not available under the earlier framework. A UAE-based group with Mainland counterparties needs to understand which forum produces the most enforceable outcome – and structure its dispute-resolution clauses accordingly before a dispute arises.

The HKIAC Administered Arbitration Rules, effective from 1 June 2024, govern Hong Kong-seated arbitrations. Where a UAE family group has commercial relationships with counterparties in the Mainland or elsewhere in Asia, Hong Kong arbitration with a well-drafted seat clause is often the most defensible neutral-forum option.

Where the Pillar Two minimum tax sits in this picture

For a UAE family group whose consolidated annual revenue reaches or approaches EUR 750 million, Pillar Two becomes a structural constraint rather than a planning opportunity. Hong Kong's minimum top-up tax and income inclusion rule are effective for fiscal years beginning on or after 1 January 2025. The in-scope threshold is consolidated group revenue of EUR 750 million or above. Groups below that threshold are not directly subject to the Hong Kong Pillar Two rules, but they may be affected if they have entities in other jurisdictions that have implemented Pillar Two separately.

What does this mean in practice for a mid-market UAE family group? For most, Pillar Two does not bite directly today. But the structural decisions made now – choice of holding jurisdiction, allocation of functions and employees, treatment of income – determine whether the group is Pillar Two-ready if it grows or if group-wide revenue triggers the threshold through a future acquisition. Counsel on our desk regularly see groups that structured for a pre-Pillar Two world and are now carrying redundant intermediate entities that add cost and compliance obligation without adding substance or treaty benefit.

The question of substance is closely related. An intermediate holding entity that has no employees, no decision-making presence, and no genuine management function in its jurisdiction of incorporation is not merely a Pillar Two concern. It is a treaty-access concern: most modern tax treaties and the OECD's Principal Purpose Test (the anti-avoidance rule that denies treaty benefits where obtaining that benefit was one of the principal purposes of an arrangement) mean that a holding entity with no commercial rationale beyond tax access is exposed to challenge. UAE advisers who focus only on the UAE-law position miss this.

The comparative read: BVI and Cayman versus Hong Kong as the holding anchor

Should a UAE family group use an offshore centre, Hong Kong, or a combination? The answer depends on the function the holding entity is actually performing.

An offshore entity – BVI or Cayman – carries known advantages: flexibility of corporate governance, no local corporate tax at the entity level, and widely recognised legal systems (the BVI and Cayman courts apply English common law). The disadvantages have grown. Substance regimes in both centres impose ongoing compliance obligations on entities that are engaged in relevant activities. A pure holding entity may be treated as a pure equity-holding company and may satisfy a lighter substance requirement, but that analysis turns on the specific activities of the entity and the current state of the regulations in each jurisdiction. Verify the current position before relying on any general statement about offshore substance.

Hong Kong as the holding anchor offers different characteristics. The territorial tax system, the absence of withholding tax, the common-law courts, and the enforceability of judgments in the Mainland through the Cap. 645 regime make Hong Kong a substantive hub rather than a shell location. A Hong Kong intermediate holding company with real management and control in Hong Kong – board meetings held in Hong Kong, key decisions made by persons present in Hong Kong, adequate office and administrative presence – can make a credible substance argument. It also produces a holding entity in a jurisdiction that counterparties and investors recognise and that courts in multiple jurisdictions treat as credible.

The combination model – offshore holdco over a Hong Kong operating or intermediate holding company – is common in our practice. We see it work well where the offshore entity is genuinely serving a purpose (estate planning, multi-generational ownership structuring, or a co-investment structure with a third-party fund) and where the Hong Kong entity carries the commercial substance that justifies treaty access and enforcement credibility. We see it fail where the offshore entity is present only because it was incorporated years ago and nobody has reviewed it since.

A UAE family group should ask: if a tax authority or a court required us to demonstrate that each entity in this structure has a genuine commercial purpose and adequate substance, could we do so for each link in the chain? If the answer for any entity is uncertain, that is where the risk sits.

Micro-scenario: the generational transition with a stalled structure

A Gulf-based family manufacturing group with operating companies in the UAE and trading relationships with Mainland China came to our desk in late 2025. The founder had structured the group in the early 2010s with a BVI holdco over a UAE free-zone entity. No Hong Kong intermediate company had ever been used. As a second-generation transition approached, the family's advisers identified two problems. First, the BVI entity had not filed the substance-related information required under the updated BVI regime, and the filing gap had grown to several years. Second, the group's Mainland trading counterparties had asked for a Hong Kong-law governed arbitration clause in a major new supply agreement, and the group had no Hong Kong entity through which to conveniently manage that relationship.

Our work focused on three things. We reviewed the substance position of the BVI entity and identified whether it qualified as a pure equity-holding company or was conducting a relevant activity that required fuller substance. We modelled the introduction of a Hong Kong intermediate holding company to serve both the commercial relationship with the Mainland counterparties and the treaty and enforcement function going forward. And we mapped the generational-transfer sequence, identifying the jurisdictions in which assets would need to be considered and the order in which steps should be taken.

The structural result was a cleaner two-tier architecture: the BVI entity retained as a family estate-planning vehicle, with the Hong Kong company carrying the commercial and treaty-access function. The qualitative outcome was a structure that could be explained coherently to a compliance team, a counterparty, and a court – which is the standard every holding structure for a family group should meet.

What foreign advisers get wrong: the paper structure versus the living structure

The most common error we observe in UAE family group holding structures is a focus on the chart rather than the reality. A structure is not what the organogram shows. It is what a regulator, a tax authority, or a court would find if it looked at where decisions are actually made, where assets are actually held, and who actually controls the entities in the chain.

Several specific errors recur. First, the management and control question – determining where a company is actually managed and controlled for tax-residence purposes – is answered by fact, not by the jurisdiction of incorporation. A BVI company whose sole director is a UAE resident making all decisions from Dubai is not managed and controlled in the BVI. That matters both for UAE corporate tax purposes and for the claim to be a BVI-resident entity for treaty purposes.

Second, beneficial-ownership disclosure is not a one-time exercise. The UAE UBO register, the BVI beneficial-ownership regime, and the Hong Kong Significant Controllers Register all require ongoing maintenance. A group that filed the initial disclosure and then completed a shareholding reorganisation without updating the registers is non-compliant – and that non-compliance surfaces at the worst possible moment, typically during a transaction or an enforcement proceeding.

Third, the treaty-access analysis must be done at the treaty level, not at the jurisdiction level. The fact that Hong Kong has a treaty with a particular country does not mean that a Hong Kong entity automatically qualifies for treaty benefits. The entity must satisfy the treaty's own conditions – including any limitation-on-benefits clause or principal purpose test – and those conditions are tested by reference to the entity's actual substance, ownership, and purpose. Counsel who miss this step leave their clients exposed to treaty-benefit denial at the worst possible moment.

Fourth, the FSIE regime in Hong Kong requires attention for groups routing passive income through a Hong Kong entity. Where a Hong Kong company receives foreign-sourced dividends, interest, or disposal gains, it must satisfy the FSIE economic-substance or participation conditions or the income will be subject to Hong Kong profits tax. A group that structured a Hong Kong intermediate holding company before the FSIE amendments took effect on 1 January 2023 needs to confirm that its Hong Kong entity now satisfies the updated conditions.

If you are at the point of reviewing an existing structure or preparing for a transaction, the sequence of steps matters as much as the analysis of the current position.

The sequence above describes the standard analytical position. Your group's situation turns on the specific entities, jurisdictions, and activities actually involved – and on the order in which review and remediation steps are taken. That is where the outcome is determined.

To discuss how the cross-border holding-structure analysis applies to your group's current position, contact info@lockhartyip.com.

Our read on where the risk sits now

The risk in a UAE family group holding structure today is concentrated in three places.

The first is substance: entities that cannot demonstrate genuine management and control, adequate employees or decision-makers, or a credible commercial rationale for existing where they exist. This risk has grown as tax authorities globally – including in the UAE, which now has a corporate tax administration – have developed more sophisticated frameworks for examining economic reality rather than legal form.

The second is beneficial-ownership transparency. The direction of travel across all relevant jurisdictions is towards more disclosure, more frequent updating, and more cross-jurisdictional information exchange. A group that has kept its beneficial-ownership registers current and consistent across all entities is in a materially stronger position than one that has not. The gap between the two positions narrows every time a new information-exchange arrangement comes into effect.

The third is enforcement readiness. A holding structure that has not been reviewed from the enforcement angle – which forum produces an enforceable result, what dispute-resolution clauses say, and whether the holding entity's jurisdiction will be recognised by the courts or arbitral institutions relevant to the group's main counterparty relationships – is carrying a risk that may not become visible until a dispute arises. By that point, remediation options are limited.

The groups that are best positioned are those that have mapped all three risk areas explicitly, corrected the gaps, and can demonstrate a coherent commercial rationale for each entity in the structure. That is a different exercise from simply confirming that the entities exist and are in good standing.

A second read on an existing structure – where a prior review, restructuring attempt, or transaction has left questions open – can identify the routes still available and the steps that should be taken first.

To assess your group's cross-border holding structure position across Hong Kong, the UAE, and the relevant offshore centres, write to us at info@lockhartyip.com.

Decision matrix: situation, instrument, route, and timing

The following decision matrix sets out the practical read across the main situations a UAE family group is likely to face.

Situation A: The group has a BVI or Cayman holdco with no substance review in the last two years. The instrument that applies is the offshore-centre economic substance regime. The route is a substance audit followed by either a remediation filing or a structural adjustment – typically introducing genuine management-and-control presence or, where that is not commercially viable, restructuring the entity's activity classification. The timing window is before a transaction, a tax audit, or a beneficial-ownership inquiry opens. The risk if action is delayed is that remediation becomes more difficult or impossible to complete within the timeline imposed by external events.

Situation B: The group wants to establish or confirm a Hong Kong intermediate holding company for treaty access and Mainland-counterparty credibility. The instrument is the FSIE regime and the relevant bilateral tax arrangements. The route is a substance and FSIE analysis of the proposed or existing Hong Kong entity, followed by documentation of the management-and-control position and, where necessary, adjustment of the entity's operational footprint. The timing is ideally before a significant Mainland transaction or counterparty relationship is put in place, so that the dispute-resolution and enforcement mechanics can be aligned from the outset. The risk of deferring is that the entity's treaty-access position is challenged retrospectively and that dispute-resolution clauses are poorly drafted because the holding-structure review was not integrated with the transactional work.

Situation C: A generational transition is approaching and the existing structure was designed for a single founder. The instruments that apply include the UAE Corporate Tax Law, the offshore-centre substance regime, the Hong Kong FSIE regime, and – if a trust is being considered – the relevant trust law of the chosen jurisdiction. The route is a sequenced structural review: map the asset locations, identify the beneficial-ownership disclosure obligations in each jurisdiction, model the succession options, and then implement in a sequence that minimises unnecessary tax events or disclosure gaps. Timing is determined by the founder's planning horizon and by the transaction or personal event that is most likely to trigger the succession question; parties should verify the current position in each jurisdiction before proceeding. The risk of not acting is not merely a tax cost; it is a governance and family-cohesion cost that cannot be undone after the event that triggers it.

Situation D: A cross-border dispute has arisen with a Mainland counterparty and the group's holding structure is in a jurisdiction that has no efficient enforcement route into the Mainland. The instrument is the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), in force since 29 January 2024, and the HKIAC Administered Arbitration Rules where a Hong Kong-seated arbitration agreement exists. The route is to assess whether an existing Hong Kong entity can be used as the enforcement-creditor vehicle, and whether interim measures under the Interim Measures Arrangement – the arrangement between the Mainland and the HKSAR that has permitted Hong Kong-seated arbitration parties to seek Mainland interim measures since 1 October 2019 – are available and should be applied for promptly. The timing is urgent: interim measures are time-sensitive by nature. The risk of delay is loss of the asset-preservation advantage that interim measures are designed to protect.

Objection handler: does a UAE group really need a Hong Kong holding layer?

A common position among UAE advisers and family principals is that a Hong Kong holding company adds complexity without commensurate benefit, given that Hong Kong and the UAE have no bilateral tax treaty. This is a reasonable starting point but it understates Hong Kong's function in a multi-jurisdiction structure.

Hong Kong's value to a UAE family group is not primarily about the UAE–Hong Kong bilateral relationship. It is about the position Hong Kong occupies in the regional and global commercial architecture. A Hong Kong entity can enforce Mainland judgments and arbitral awards through well-established mechanisms. It sits in a common-law jurisdiction whose courts are respected globally. It carries no withholding tax on dividends or interest. It provides a credible management-and-control location for a regional holding or investment-management function. And it connects, through the Cap. 645 registration mechanism, to the Mainland's court system in a way that no other offshore centre does.

For a UAE family group with any Mainland exposure – as a counterparty, as an investor, or as a supplier – the Hong Kong layer is not additional complexity. It is the mechanism by which Mainland-related risk is managed and Mainland-related opportunity is captured in an enforceable way. The question is not whether to include it, but what function it should perform and how to ensure it performs that function credibly.

We regularly advise on this exact question, and the starting point is always the same: what does the group actually need the structure to do, and which jurisdictions provide the legal and institutional infrastructure to do it reliably?

For more on how holding structures operate across Hong Kong and offshore centres, see our Holding Structures practice page and our matter note on Hong Kong holding companies and Cayman Islands investment structures. For the latest developments affecting UAE-related holding positions, see our briefing on this topic.

Related practices

• Tax Positions – FSIE regime, treaty access, and Pillar Two analysis for cross-border groups
• Private Wealth – succession, trust structuring, and asset protection for family principals
• Disputes & Arbitration – enforcement routes across the Mainland, Hong Kong, and offshore centres

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• Holding Structures
• Hong Kong Holding Company Cayman Islands Investments Cayman 3
• Holding Structure Family Owned Group Uae Uae Briefing

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.