UAE: Conditions for qualifying investment funds to be exempt from corporate tax

The Ministry of Finance in United Arab Emirates (UAE) recently published:

• Cabinet Decision No. (81) of 2023—outlining the additional conditions to be met by qualifying investment funds (QIFs) in order to be exempt from corporate tax
• Cabinet Decision No. (75) of 2023—outlining the administrative penalties for violations of the UAE corporate tax law

A QIF is an investment fund (IF) when the following conditions are met in accordance with Article 10 of the corporate tax law:

• The IF or the IF’s manager is subject to the regulatory oversight of a competent authority in the UAE, or a foreign jurisdiction.
• Interests in the IF are traded on a recognized stock exchange, or are marketed and made available sufficiently widely to investors.
• The main purpose of the IF is not to avoid corporate tax.

According to the cabinet decision, the IFs (other than real estate investment trusts (REITs)) to be exempted from corporate tax include the following:

• The fund is to be primarily engaged in investment business activities, with ancillary or incidental activities not exceeding 5% of its total annual revenue.
• The share of ownership interests in the IF held by a single investor and its related parties do not exceed 30% (when the IF has less than 10 investors) or 50% (when the IF has 10 or more investors). Further, this condition will be deemed to be satisfied for the first two financial years and will be non-binding following the first two financial years, provided that the same may be substantiated.
• It is overseen by an investment manager employing a minimum of three investment professionals.
• The day-to-day management of the fund is not being controlled by investors.

Regarding REITs, in addition to the general conditions established in the corporate tax law for QIFs detailed above, the additional exemption conditions include the following:

• Real estate assets, excluding land held by the REIT, exceeds AED100 million in value.
• A minimum of 20% of its share capital is publicly listed or wholly owned by two or more institutional investors (provided under Article 5 of the cabinet decision), such as the federal or local government, government entity or government-controlled entity, foreign government, bank, insurance provider, pension or social security funds, etc.
• An average real estate asset percentage of at least 70% is maintained annually.

Administrative penalties will be imposed in case of failure to maintain records and other information as specified, failure to submit a tax return within the timeframe, failure to settle the payable tax, etc. The list of activities on which a penalty will be imposed has been annexed to Cabinet Decision No. (75) of 2023.

Read an August 2023 report prepared by the KPMG member firm in the UAE