UAE Introduces New Tax Rules in April 2025 to Attract Global Investment

UAE's April 2025 Tax Reforms: Key Highlights

In a strategic move to enhance its investment landscape, the UAE has implemented new tax regulations effective April 2025. These reforms are encapsulated in Cabinet Decisions No. 34 and 35, focusing on Qualifying Investment Funds (QIFs), Real Estate Investment Trusts (REITs), and the tax obligations of non-resident investors.

Cabinet Decision No. 34: Tax Exemptions for QIFs and REITs

Under the new framework, QIFs and REITs can benefit from corporate tax exemptions, provided they meet specific criteria:

• Real Estate Asset Threshold: Funds must ensure that real estate assets constitute less than 10% of their total assets. Exceeding this threshold results in 80% of the real estate income being taxable.
• Ownership Diversity: Funds must maintain a diverse investor base. For instance, in funds with fewer than 10 investors, no single investor should hold more than 30% of the fund. For funds with more than 10 investors, the threshold is 50%.
• Grace Periods: Temporary breaches in ownership diversity are permitted, provided they are rectified within 90 days or occur during fund liquidation.

These measures aim to promote transparency and prevent tax avoidance, ensuring that tax benefits are granted to funds contributing to the UAE's economic growth.

Cabinet Decision No. 35: Defining Tax Nexus for Non-Resident Investors

This decision outlines the conditions under which non-resident juridical investors in QIFs and REITs are considered to have a taxable presence, or 'nexus,' in the UAE:

• If a fund distributes 80% or more of its income within nine months of the financial year-end, the nexus is established on the dividend distribution date.
• If the fund fails to meet the 80% distribution threshold, the nexus is established on the date the investor acquired the ownership interest.
• A nexus is also created if the fund fails to meet ownership diversity requirements during the tax period.

These provisions provide clarity for non-resident investors, ensuring they are aware of their tax obligations and can plan their investments accordingly.

Implications for Businesses and Investors

The updated tax regulations are designed to:

• Attract foreign investment by offering clear and favorable tax conditions.
• Encourage the establishment of investment funds and REITs in the UAE.
• Align the UAE's tax framework with international standards, enhancing its reputation as a transparent and investor-friendly jurisdiction.

Businesses and investors are advised to review their structures and ensure compliance with the new regulations to fully benefit from the available tax exemptions.

Conclusion

The UAE's April 2025 tax reforms signify a commitment to fostering a competitive and transparent investment environment. By providing clear guidelines and aligning with global tax standards, the UAE continues to solidify its position as a leading destination for international investors.