06 Oct 2023
The UAE Ministry of Finance (MoF) has taken a significant step in establishing the criteria for Qualifying Investment Funds under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. Cabinet Decision No. (81) of 2023, introduces additional conditions investment funds must meet to be considered Qualifying Investment Funds and thereby exempt from Corporate Tax. The purpose of this decision is to safeguard the integrity of the Corporate Tax system while reinforcing the UAE's position as a major center for international investment.
The New Cabinet Decision for Qualifying Investment Funds:
Investment Trusts duces specific conditions that investment funds, excluding Real Estate Investment Trusts (REITs), must satisfy to be eligible for Corporate Tax exemption. These conditions include:
1. Engagement in Investment Activities: Qualifying Investment Funds must be primarily involved in investment business activities, with ancillary or incidental activities generating a revenue not exceeding 5 percent of their total annual revenue.
2. Ownership Share Limits: The share of ownership interests in the investment fund held by a single investor and its related parties must not surpass 30 or 50 percent, depending on how many investors are involved.
3. Professional Management: Investment funds must be supervised by an investment manager employing a minimum of three investment professionals.
4. Investor Control: The fund's day-to-day management should not be controlled by investors.
Flexibility for Non-REIT Investment Funds:
Non-REIT investment funds will be granted a grace period for the initial two financial years after their establishment, subject to providing evidence of compliance with diverse ownership criteria. This measure aims to enhance the adaptability of the Corporate Tax framework and make it more practical for taxpayers. However, this flexibility is subject to the requirement that the intent to diversify ownership after the initial two financial years is well-demonstrated .
Exemption Conditions for REITs:
Regarding REITs, the exemption conditions encompass the need for real estate assets, excluding land held by the REIT, to exceed AED 100 million in value. Additionally, the company must maintain an average real estate asset percentage of 70% on an annual basis, and at least 20% of the capital must be publicly traded or owned by more than two institutional investors.
The Ministry of Finance underscores that the newly introduced supplementary conditions, as outlined in Cabinet Decision No. (81) of 2023, have been meticulously crafted for clarity and ease of application. These conditions will significantly enhance the UAE's standing as a preeminent investment destination, simultaneously upholding the integrity of the Corporate Tax framework. This decision harmonizes with the UAE's unwavering dedication to cultivating an environment conducive to investment, thus securing its enduring competitiveness within the global marketplace.