Business & Investments

Recent updates to the UAE corporate tax system offer fresh perspectives for investors participating in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs). The most significant change is the introduction of tax relief for QIF investors starting from the 2025 financial year, which eliminates the taxation of income derived from QIFs. However, investors need to ensure compliance with specific conditions related to diversity of ownership and real estate asset investments.

Qualified Investment Funds (QIFs):
Traditionally, QIFs were classified as “tax-transparent,” meaning that their profits were subject to tax in the hands of individual investors. However, as of 2025, investors will no longer be taxed on income derived from a QIF, provided they meet two conditions. The first condition is the ‘diversity of ownership’ mandate, which prohibits any single investor, including related parties, from owning more than 30-50% of the fund or having control over it. This measure is designed to prevent misuse of QIFs for tax avoidance purposes. The second condition involves the ‘real estate asset investment’ threshold, which limits investment in immovable property to no more than 10% of the total asset value of the fund.

A grace period of 90 days is provided should the diversity of ownership condition be breached, and such breaches will only impact the responsible investors, not the entire fund. However, a breach in the real estate investment threshold may result in 80% of the pro-rated immovable property income being taxed at the investor level, except for individual investors.

Real Estate Investment Trusts (REITs):
Similarly, juridical investors in REITs will be taxed only on 80% of the real estate income derived through the REIT. Tax relief can also be claimed at the time of exit, subject to certain conditions. The framework for non-resident juridical investors has also been revised. Previously taxed on income from immovable property in the UAE, these investors will now face taxes on their prorated income from QIFs and REITs only if the diversity of ownership or real estate investment thresholds are exceeded.

Non-Resident Juridical Investors:
For non-resident juridical investors—foreign companies, in particular—there is now clarity regarding their tax obligations. If the diversity of ownership or real estate asset investment condition is breached, these investors will be subject to tax based on their prorated income from QIFs and REITs. Non-resident investors can now look forward to greater tax certainty, reducing the burden of tax compliance.

The introduction of the Qualifying Limited Partnership (QLP) framework provides additional tax-transparency benefits for non-resident juridical investors and allows collective investments in the UAE without taxation on immovable property income.

These tax reforms will bolster the UAE's position as a leading investment hub, driving economic growth by offering more clarity and incentives for investors looking to establish or expand their investments in the region.

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