Are UAE Investment Funds exempted from UAE Corporate Tax?
The UAE has continued to achieve success and strengthen its position as a leading asset and wealth management hub, and the destination of choice in the region for the financial services sector. The sector is an important pillar of the UAE economy.
The UAE offers comprehensive investment fund regimes and fund vehicles that cater to a wide variety of fund manager and investor requirements. The introduction of Corporate Tax presents an opportunity to further increase confidence from international investors and bolster the UAE’s position as the location of choice for investment funds, investment fund managers, and entities used by investment funds to hold their assets or invest their funds.
Investment funds are commonly organised as limited partnerships (as opposed to corporate entities) to ensure tax neutrality for their investors. This tax neutrality follows from the fact that most countries treat limited partnerships as transparent (‘flow through’) for domestic and international tax purposes, which puts investors in the fund in a similar tax position as if they had invested directly in the underlying assets of the fund.
The UAE Corporate Tax regime intends to treat UAE and foreign investment funds that are structured as unincorporated partnerships as fiscally transparent.
Further, regulated investment funds and Real Estate Investment Trusts can apply to the Federal Tax Authority (FTA) to be exempt from UAE Corporate Tax subject to meeting certain requirements:
- The investment fund is regulated by a regulatory authority in the UAE that is recognised by the Ministry of Finance (e.g., the Securities and Commodities Authority, the Financial Services Regulatory Authority, the Dubai Financial Services Authority)
- No group of five (5) or fewer investors (and their Related Parties1) has a 50% or greater economic interest in the investment fund
- No single investor (and their Related Parties1) has a 20% or greater economic interest in the investment fund
- Interests in the investment fund can be freely traded on a stock exchange in the UAE (or a recognised foreign stock exchange), or are widely marketed and made available to the intended categories of investors.
Note: The information in this article is meant to provide an initial introduction to the proposed UAE Corporate Tax regime and not be used for individual or business decisions as it does not represent the final legislation by the Government. More information o the UAE Corporate Tax regime will be made available in due course.
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