UAE Corporate Tax: Guide on Investment Funds & Manager Exemption

The UAE corporate tax law outlines provisions for investment funds and investment manager exemptions. An investment fund business can apply for exemption from corporate tax in the UAE as a Qualifying Investment Fund upon meeting the relevant conditions. The Federal Authority (FTA) has issued a new guide for persons seeking to apply either the exemption for Qualifying Investment Funds or the Investment Manager Exemption.

Corporate tax consultants in Dubai can help you further with the application for exemption. Read the following blog to gain insights into tax implications, exemptions, and regulations relevant to these entities:

What are investment funds and investment managers?

Investment funds are those businesses that receive funds from investors on a collective basis and invest them as per a defined investment policy. In return, investors share in the profits of the investment fund.

Investment funds include marketable security funds, mutual funds, exchange-traded funds, money-market funds, hedge funds, private equity funds, and real estate funds. An investment fund often appoints an investment manager who will make investment decisions on behalf of the investment fund. Investment funds in the UAE generally include:

• Public funds that are available to the general public at large
• Private funds that are not accessible to the wider public but open to professional investors

What is a Qualifying Investment Fund?

An investment fund business can attain the status of a Qualifying Investment Fund by applying for exemption from corporate tax in the UAE. The application for exemption from the UAE corporate tax should be submitted to the FTA. FTA will approve if the entity meets the conditions for becoming a qualifying investment fund under the corporate tax in the UAE. Corporate tax consultants in the UAE can help you determine your eligibility for the same.

Conditions for Qualifying Investment Funds Exemption

The conditions for an investment fund to be treated as a qualifying investment fund and exempt from the UAE corporate tax are:

• The investment fund or the investment fund manager must be regulated by a UAE competent authority or a foreign competent authority
• The interests in the investment fund must be traded on a Recognised Stock Exchange or marketed and made available adequately widely to investors
• The main purpose for the exemption application should not be tax avoidance
• The main business or business activities of the entity must be Investment Business. If the investment fund entity carries out any other activity, it must be ancillary or incidental
• A single investor and its Related Parties should not own more than 30% of the ownership interests in the investment fund, where the investment fund has less than ten investors; or more than 50% of the ownership interests in the investment fund, where the investment fund has ten or more investors
• The investment fund should be managed or advised by an Investment Manager who has a minimum of three investment professionals
• The investors should not have control over the day-to-day management of the investment fund

Conditions for the Investment Manager Exemption

The following conditions must be met to qualify for the investment manager exemption under corporate tax in the UAE:

• The Investment Manager must be exclusively associated with the business of rendering investment management or brokerage services
• The investment manager should be regulated by the competent authority in the UAE
• The transactions must be part of the ordinary course of the investment manager’s business
• The transactions with the non-resident person must meet the arm’s length standard and the investment manager should receive due compensation for providing the service
• The investment manager should not be the non-resident Person’s representative in the UAE in relation to any other income or transaction that is subject to Corporate Tax for the same Tax Period
• The investment manager should meet all the conditions outlined in any future decision issued by the Cabinet

Conditions for a Real Estate Investment Trust to be exempt from Corporate Tax

There are some additional conditions for a REIT to meet to qualify for the corporate tax exemption in the UAE. Remember that these additional conditions exclusively apply to the REITs. Corporate tax advisers in Dubai can help you understand these conditions. The conditions for REIT exemptions under corporate tax are listed below:

• The value of real estate assets (excluding land) held by the management or owned by the REIT must exceed AED 100 million
• Not less than 20% of the REIT share capital must be floated on a Recognised Stock Exchange, or it is directly wholly owned by two or more institutional investors specified in Article 5 of Cabinet Decision No. 81 of 2023, provided that at least two of those institutional investors are not Related Parties
• The REIT must have an average Real Estate Asset Percentage of no less than 70% during the relevant Gregorian calendar year or the relevant 12-month period for which the financial statements are prepared

Corporate Tax compliance requirements

An investment fund business needs to register with the FTA and obtain a Tax Registration Number (TRN) for getting corporate tax exemption in the UAE. The application can be made to the FTA upon meeting the relevant conditions for investment fund exemption. From corporate tax.

The application should mention the specific tax period in which the exemption is sought. After reviewing the application the FTA will either accept or reject the application and specify from which Tax Period the Qualifying Investment Fund status applies.

If rejected, the FTA will also specify the reason for rejecting the application for qualifying investment fund exemption for corporate tax in the UAE. If approved, the qualifying investment fund will be treated as an exempt person and will not be subject to corporate tax.

Hire the Best Corporate Tax Consultants in Dubai

The FTA released the Corporate Tax General Guide to provide essential insights on the applicability of UAE Corporate Tax to investment funds, investors, and investment managers. However, it is advisable to hire the best corporate tax advisers in Dubai such as Tax Gian to accurately asses your eligibility status.

Tax Gian is a brand of Jitendra Tax Consultants (JTC), which is one of the best tax agents in the UAE registered with the FTA. JTC and its associate Jitendra Chartered Accountants (JCA) have been providing exemplary accounting and tax advisory services in Dubai for more than two decades. Consult with Tax Gian’s tax experts to navigate the challenges of the UAE corporate tax regime.