In a landmark move to boost the UAE’s competitiveness as a global investment hub, the UAE Cabinet has issued Decision No. 34 of 2025, introducing preferential tax treatment for investors in Qualified Investment Funds (QIFs). This decision, announced by the UAE Ministry of Finance, reflects the country’s commitment to encouraging foreign and local investment by offering a clear and supportive regulatory and tax framework.
Key Provisions of the Decision
The Cabinet Decision outlines several critical provisions aimed at regulating the tax treatment of QIFs:
Corporate Tax Exemption: Income earned through QIFs is exempt from corporate tax, provided specific conditions are met.
Real Estate Holdings Limitation: To qualify for the tax exemption, a QIF’s real estate holdings must not exceed 10% of its total assets.
Diversified Ownership Structure: The fund must maintain a diversified ownership structure to prevent dominance by a single investor or a related group of investors.
Compliance and Grace Periods
To facilitate adherence to these provisions, the decision includes measures to accommodate new and existing funds:
Grace Period for New Funds: Newly established funds are granted a two-year period to comply with the ownership diversification requirements, allowing them time to attract a broad investor base.
Temporary Breach Allowance: Funds are permitted a temporary breach of the diversification requirement for up to 90 days annually, provided the breach is not due to fund liquidation or dissolution.
Implications of Non-Compliance
The decision delineates the consequences of failing to meet the stipulated conditions:
Ownership Diversification Breach: If a fund fails to maintain the required ownership diversification, the tax exemption is revoked only for the non-compliant investor’s share of income, assuming all other conditions are satisfied.
Exceeding Real Estate Holdings Limit: Should a fund’s real estate holdings surpass the 10% threshold, 80% of the income derived from these assets will become subject to corporate tax
Specific Provisions for Real Estate Investment Trusts (REITs)
The decision also addresses the tax treatment of REITs and similar entities:
Partial Tax Exemption: REITs benefit from a partial tax exemption, with only 80% of their real estate income being subject to corporate tax. This approach aims to balance regulatory oversight with the potential for attractive returns.
Measures to Facilitate Foreign Investment
To further encourage foreign investment, the decision introduces simplified compliance procedures:
Distribution Requirement for Foreign Investors: Foreign corporate investors who distribute at least 80% of their income within nine months after the end of the financial year are required to register for corporate tax only at the time of distribution. This measure streamlines compliance and reduces administrative burdens.
Pass-Through Tax Treatment for Limited Partnerships
Reflecting global best practices, the decision provides for certain limited partnerships to qualify for transparent, or pass-through, tax treatment:
Transparent Tax Treatment: Eligible limited partnerships are not taxed at the entity level; instead, tax obligations pass through to the individual partners, ensuring equitable treatment across different investment structures.
Strategic Implications
This legislative development is part of the UAE’s broader strategy to diversify its economy and attract global capital. By offering tax incentives and clarifying regulatory requirements, the UAE aims to solidify its position as a leading destination for investment funds and financial services.
For fund managers and investors, understanding and adhering to these new regulations is crucial. Engaging with professional auditing and consulting services can provide valuable guidance to ensure compliance and optimize the benefits offered by this decision.
In conclusion, the UAE’s approval of corporate tax exemptions for Qualified Investment Funds represents a strategic initiative to enhance the nation’s investment landscape, promote economic diversification, and attract global capital.
Contact AM Audit’s experts today and ensure you’re aligned with the latest regulations.
