UAE’s corporate tax exemption for investment funds ‘a welcome relief’

It comes after the government unveiled Federal Decree-Law No. 47 of 2022 (56 pages / 441KB PDF) on the taxation of corporations and businesses last week. The legislation, the country’s first federal corporate tax law, will be administered by the Ministry of Finance. From June 2023, businesses that earn taxable net profit of more than AED375,000 (c. US$100,000) will be required to pay corporate tax at a rate of 9% on earnings above that threshold. This will include UAE companies that are incorporated or managed and controlled in the UAE, as well as some entities in free zones.

There are a number of important carve-outs from the regime including exemptions for government entities, energy and resources businesses and investment funds. According to the new law, investment funds will be able apply to the Ministry of Finance to be designated as a ‘qualifying investment fund’ – a status that will exempt them from paying federal corporate tax on any profits.

The Ministry of Finance will require each qualifying investment fund to meet several criteria, including being regulated by a competent authority either within the UAE or else by a recognised competent authority in another jurisdiction. Qualifying investment funds must also demonstrate that their interests are tradeable on a recognised stock exchange and that the principle purpose of the fund is not to avoid corporate tax. 

Tom Bicknell of Pinsent Masons said: “Although heralded for some time, the explicit exemption of investment funds from the UAE’s new corporate tax regime will still come as a welcome relief. Important questions remain, however, over qualifying jurisdictions and the number of interests that must be publicly offered or traded. Certain corporates and family offices – particularly those with large real estate holdings – who were embarking on restructures may now consider the investment fund model in light of its favourable tax treatment.”