Article 11 of UAE’s Federal Decree Law No. 47 of 2022 – or the ‘Corporate Tax Law’ - includes a Non-Resident Person to be a taxable person if they have a nexus in the state, as specified by a Cabinet decision issued upon the suggestion of the Minister.

The Cabinet Decision No. 56 of 2023 issued on May 30, 2023 proceeded to state that a Non-Resident Person shall have a nexus in the state if it earns income from any Immovable property in the state.

Further, the Cabinet Decision No. (81) of 2023 issued on July 18, 2023 also clarified the inclusion of certain income as taxable income in the hands of the investor.

Accordingly, for non-resident juridical investors, the income – such as dividends or capital gains - received from a qualifying investment fund (QIF) or real estate investment trust (REIT) is not taxable in the UAE unless the investor is considered to have a nexus (i.e., a taxable presence) in the UAE.

Key matters

The recently announced Cabinet Decision 35 of 2025 read with Cabinet Decision No. 34 of 2025 aims to reduce the risk of unintended UAE tax exposure and compliance burdens when investing via UAE-based funds.

While the official document is yet to be released, the following key factors are noteworthy:

Taxability only on specified funds

A non-resident juridical investor in a UAE-based QIF REIT will generally not be considered to have a taxable presence in the UAE provided the fund complies with key conditions, such as meeting the 10% real estate asset threshold (for QIFs), maintaining diversity of ownership, and distributing at least 80% of its income within nine months from the financial year-end.

Non-resident juridical investors who invest exclusively in QIFs and/or REITs will not be deemed to have a taxable presence in the UAE.

Events triggering creation of nexus

However, a taxable nexus will arise:

On the date of dividend distribution if the 80% income distribution condition is met. Or
On the date of ownership acquisition if the fund fails to meet the distribution threshold.

For QIFs, an additional taxable nexus arises if the diversity of ownership condition is breached in a tax period. Outside of these specific cases, passive investment in a compliant QIF or REIT does not trigger UAE tax registration or liability.

Safeguards in event of breach of conditions:

Adequate safeguards have been prescribed to ensure fair treatment for investor income in case the fund breaches the prescribed conditions:

If a QIF’s real estate holdings go above 10%, only 80% of the income derived from those real estate assets will be subject to UAE Corporate Tax. The remaining 20% is effectively tax-free.
If an ownership diversity requirement is breached, funds are given a grace period of 90 days to correct diversity of ownership issues, without losing QIF status.
Further, the tax consequence is confined to the investor(s) who caused the breach, and the fund can otherwise continue to be treated as a qualifying fund for the other investors. This approach protects compliant investors from being penalized due to another investor’s actions and prevents a complete loss of tax benefits for the fund as a whole.

As of mid-2024, the UAE Securities and Commodities Authority (SCA) reported an 83% increase in licensed portfolio and fund management companies, totalling 33 firms, up from 18 in January of the previous year. Additionally, the SCA received 25 new applications to establish investment funds, with the total number of local investment funds to reach 58 in the near future.

The UAE also has a developing market with several active REITs, including Emirates REIT and ENBD REIT. While specific numbers fluctuate, industry reports indicate a growing interest and establishment of REITs in the region.

Considering the evolving landscape and investor demands in this space, the new reforms and clarity provided vide these decisions are a welcome change.

Foreign institutional investors now have clearer rules to plan their investment. There is definite clarity on the exact conditions that would create a UAE nexus that will aid investors to monitor their fund investments accordingly.

Fund managers can likewise strive to meet the QIF criteria to ensure their foreign investors stay outside the UAE tax net. Overall, this clarity helps investors manage compliance proactively and avoid surprises, and supports the UAE’s position as an attractive and low-friction jurisdiction for fund investors.

Raju Menon, Special to Gulf News

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