UAE Corporate Tax: Additional Conditions for Qualifying Investment Funds

The UAE Ministry of Finance has released Cabinet Decision No. (81) of 2023 providing additional conditions for Qualifying Investment Funds under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (UAE Corporate Tax Law). Investment funds are being treated as exempted persons under the UAE Corporate Tax Law provided, they meet certain conditions.

Such exempted investment funds are termed Qualifying Investment Funds and Article 10 of the UAE Corporate Tax Law describes the conditions for eligibility. The newly released Cabinet Decision outlines additional conditions the investment funds must meet to be treated as a Qualifying Investment Fund and be exempt from Corporate Tax.

Corporate tax consultants in Dubai can walk you through all the conditions an investment fund must meet to be treated as a ‘Qualifying Investment Fund’ and to be exempted from corporate tax. Read ahead to have a deeper understanding of the additional conditions outlined in Cabinet Decision No. (81) of 2023 detailing the additional conditions investment funds must meet to be treated as a Qualifying Investment Fund:

Primary Conditions for Qualifying Investment Funds

An investment fund will be eligible to apply for exemption from corporate tax in the UAE as a Qualifying Investment Fund if it meets all of the following conditions:

1. The investment fund or its manager is regulated by a competent authority in the UAE or a foreign competent authority recognized for the purpose of the UAE corporate tax law.
2. Interests in the investment fund are traded on a Recognised Stock Exchange or are marketed and made available sufficiently widely to investors.
3. The main objective or chief purpose of the investment fund is not to avoid Corporate Tax
4. Any other conditions as may be prescribed in a decision issued by Cabinet at the suggestion of the UAE Minister of Finance

Conditions to Exempt an Investment Fund from Corporate Tax

Number four of the Article 10 of the UAE Corporate Tax Law states that any other conditions will be prescribed in a Cabinet Decision. In line with this, the Ministry of Finance issued the Cabinet Decision No. (81) of 2023. Article 2 of the Decision outlines the following conditions for an investment fund (except Real Estate Investment Trust (REIT)) to be exempt from UAE corporate tax:

1. The main business or business activity should be Investment Business activities. Any other business or business activity practised by the Investment Fund should be ancillary or incidental.
2. 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. They should not also own more than 50% of the ownership interests in the investment fund, where the investment fund has ten or more investors.
3. The investment fund should be managed or advised by Investment Manager that has at least three investment professionals
4. The investors should not control the daily management of the investment fund

Considerations related to business activities

The Cabinet Decision explains in detail the considerations related to business or business activities of the Qualifying Investment Fund. Corporate tax advisers in Dubai can help you interpret these conditions accurately. The following are those considerations:

• If the business or business activities of a resident Investment Manager are attributed to a resident investment fund, the Taxable Income of the Investment Manager needs to be adjusted to include the income attributed to the investment fund.
• The Business or Business Activities of an Investment Manager that are attributed to a resident investment fund shall be considered to be Investment Business activities where they are subject to Corporate Tax in the UAE through the Investment Manager or undertaken by an Investment Manager that would meet the conditions under Clause (1) of Article (15) of the Corporate Tax Law, had the reference to the Non-Resident Person in that Clause been related to a Resident Person
• The other Business or Business Activities will be treated as ancillary or incidental only when the combined Revenue of such Business or Business Activities does not exceed 5% of the total Revenue of the investment fund in the same Financial Year

Considerations related to ownership

The Federal Tax Authority (FTA) will consider whether the investment fund has met the ownership conditions in the first two Financial Years of the establishment of the investment fund if there is adequate evidence to prove the intention of the investors to meet these conditions after the first two Financial Years, as determined by the Authority. If it doesn’t meet the conditions, the investment fund will no longer be treated as an Exempt Person from the beginning of the third Financial Year of its establishment. Avail of corporate tax consulting services in Dubai for more insights in this regard.

Consult with Corporate Tax Experts at Tax Gian

Since the UAE corporate tax regime is at a nascent stage, businesses need to keep track of the latest developments and make appropriate tax decisions. Only highly qualified corporate tax consultants in Dubai can help businesses navigate through the complexities of the direct tax regime. Tax Gian, a brand of Jitendra Tax Consultants (JTC), can offer valuable insights and guidance related to corporate tax requirements in the UAE.

Tax Gian is a leading tax expert in the UAE with more than two decades of experience. We offer bespoke corporate tax services in Dubai in line with regulatory expectations. Our highly qualified tax agents in Dubai can help companies to guide you through complex areas of corporate tax to mitigate the risk of non-compliance.