Investment Funds and Managers Guide

The Federal Tax Authority (FTA) has released a corporate tax guide on tax treatment for investment funds, investors, and investments with the assistance of investment managers on May 6, 2024.

This guide is designed to provide general guidance to help the investors, financial advisors, tax professionals, and individuals involved in managing or advising investment funds to understand the UAE Corporate Tax treatment for investment funds, investors, and investments with the assistance of Investment Managers.

This guide explains some of the terms and conditions in the Corporate Tax Law and sets out the following:

• Understanding Qualifying Investment Funds and Managers : An overview of the meaning of Qualifying Investment Fund and Investment Manager,

• Unlocking Tax Exemptions : Discovering the conditions for a Qualifying Investment Fund to be exempt from Corporate Tax and conditions for a Real Estate Investment Trust (“REIT”) to be exempt from Corporate Tax,

• Understanding tax implications for investors : Gathering insights around how does investing in a Qualifying Investment Fund affects corporate tax;

• Understanding Foreign Investor Benefits :Exploring how foreign investor individuals can benefit from the Investment Manager Exemption as specified under Article 15 of the Corporate Tax Law, and

• Meeting Compliance Requirements : Understanding the relevant Corporate Tax compliance requirements for investment funds and managers

Investment plays a pivotal role in driving economic growth, with the quantum and magnitude of investments directly impacting a country’s economic prosperity. Recognizing the significance of investments, the United Arab Emirates (UAE) has emerged as a preferred destination for establishing investment funds, owing to its tax-friendly environment.

Tax Exemptions for Investment Funds

The UAE’s corporate tax regime offers tax exemptions to investment funds, subject to specific conditions. These exemptions serve to bolster the UAE’s appeal as an attractive hub for various investment activities.

1. Regulation Requirements: To qualify for tax exemption, investment funds must be regulated by one or more regulatory authorities in the UAE. Unregulated funds are ineligible for such exemptions.

2. Ownership Structure: Investment funds should ensure that a group of five or fewer investors, along with their Related Parties, do not collectively hold a 50% or greater economic interest in the fund. Additionally, individual investors and their Related Parties should not hold a30% or greater economic interest.

3. Trading Accessibility: The interests held by investors in the fund should be freely tradable on either the UAE or foreign stock exchanges, with sufficient market liquidity.

Tax Benefits for Investment Funds

The Corporate Tax regime in the UAE offers several tax benefits to investment funds, including:

1. Fiscally Transparent Treatment: Investment funds are considered fiscally transparent (i.e. pass through entities from taxation perspective), relieving them from tax liability at the fund level. Instead, tax obligations are transferred to investors based on their share of distributed income.

2. Exemptions for Regulated Funds: Regulated investment funds and real estate investment trusts (REITs) meeting prescribed conditions can apply for exemptions from corporate tax.

3. Treatment of Investment Fund Managers: Even if investment fund managers are based in the UAE, their presence does not constitute a permanent establishment for foreign investment funds, encouraging them to establish operations in the UAE.

Exploring Other Investment Structures

Beyond investment funds, the UAE provides opportunities for other investment vehicles and structures, such as family offices and real estate investment. Family offices, subject to specific conditions, can benefit from tax exemptions or choose to be treated as unincorporated partnerships.

The UAE’s corporate tax law also addresses real estate investment activities, distinguishing between personal and corporate ownership structures. Real estate investment trusts (REITs) can seek exemptions from corporate tax under certain criteria.

Conclusion

The UAE’s corporate tax regime offers a conducive environment for investment activities, providing tax exemptions and benefits to investment funds and other investment structures. As the UAE continues to enhance its regulatory framework and tax incentives, it remains an attractive destination for investors seeking growth opportunities in the region.

Summary

The FTA released a corporate tax guide on May 6, 2024, focusing on UAE Corporate Tax treatment for investment funds, investors, and investment managers. It covers topics like tax exemptions, investor benefits, and compliance requirements, aiming to assist professionals in understanding and navigating the tax landscape.

The UAE offers tax exemptions to regulated investment funds meeting specific criteria, enhancing its appeal as an investment destination. These exemptions are subject to regulatory compliance, ownership structure conditions, and trading accessibility. Investment funds also benefit from fiscally transparent treatment, exemptions for REITs, and favorable treatment for investment managers.

The UAE’s tax regime encourages investment activities by providing a conducive environment and tax incentives, making it an attractive choice for investors seeking growth opportunities in the region.

Disclaimer: 
The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk. 

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