The UAE Corporate Tax Law establishes the eligibility criteria for an investment fund to be exempt from Corporate Tax. The term Investment Fund refers to an arrangement or legal entity whose primary purpose and activity involve pooling investor funds and investing them according to a defined investment policy. This encompasses real estate investment trusts, mutual funds, private equity funds, or other alternative investment funds. Thus, it is advisable for Taxable Persons to consult Tax Consultants in UAE to ensure compliance with the Corporate Tax Regulations in UAE.
Determining the vehicle for investment funds is typically driven by legal and regulatory considerations, as well as the tax profile and other requirements of the sponsor and investors. However, irrespective of the type of investment fund, the Corporate Tax Law aims to ensure tax neutrality for investment funds. This means that investors, whether domestic or foreign, should be in a similar tax position as if they had directly invested in the underlying assets of the fund. It is common internationally for tax systems to provide neutrality between direct investments and investments made through collective investment vehicles by exempting the income of such entities from taxation.
Whereas, if an investment fund is not structured as an Unincorporated Partnership that is treated as fiscally transparent for Corporate Tax purposes, it can apply to the Authority for an exemption from Corporate Tax, provided it fulfills the conditions specified in the Corporate Tax Law. The same applies to an investment fund structured as a limited partnership, unit trust, or any other fiscally transparent arrangement that has applied to the Authority to be treated as a Taxable Person.
Exemption from Corporate Tax for Qualifying Investment Funds may also extend to wholly owned and controlled UAE entities that are utilized by a Qualifying Investment Fund to hold their assets or invest their funds. However, the exemption does not apply to individuals or entities providing management services to a Qualifying Investment Fund. Such individuals or entities will be subject to Corporate Tax as ordinary Taxable Persons unless they meet specific criteria and are identified as Qualifying Investment Fund Managers.
Additionally, the investment fund itself or the manager overseeing the fund must be subject to regulatory oversight by a competent authority in the UAE or a recognized foreign competent authority. The specific activities involved in the fund or investment management determine whether the investment fund or the individual managing it falls under the regulatory purview. If these activities are carried out in the UAE, the investment fund or manager must be regulated by the relevant mainland or Free Zone authority responsible for licensing and supervising investment fund operations or fund management activities. Examples of such competent authorities in the UAE include the Securities and Commodities Authority, the ADGM Financial Services Regulatory Authority, and the DIFC Dubai Financial Services Authority.
Moreover, it is possible for a UAE-based investment fund to be managed by an individual located outside the UAE. While it may be challenging for a non-resident fund manager to conduct all activities without requiring a license or registration in the UAE, the exemption from Corporate Tax remains available if the foreign fund manager is duly regulated in their place of residence or business by a recognized foreign authority competent in regulating fund management activities.
Interests in the investment fund must be traded on a Recognized Stock Exchange or must be marketed and made widely available to investors. A Recognized Stock Exchange encompasses a stock exchange established in the UAE, licensed, and regulated by the relevant competent authority, or a foreign stock exchange that is licensed and regulated by the appropriate foreign competent authority and holds equivalent status to a UAE stock exchange.
To determine a Qualifying Investment Fund and whether a fund is marketed and made sufficiently available to investors is determined by the type of investment fund and the requirements set forth in the Corporate Tax Law. Thus, it is advisable for Taxable Persons to consult Tax Consultants in UAE to effectively implement the Corporate Tax Regulation. Therefore, contact us and we shall be glad to assist you.
Read More: Determining Taxable Income for Corporate Tax Purposes in UAE