Pursuant to the analysis on the UAE Tax Law and the Qualifying Free Zone Person ("QFZP"), on 18 July 2023, the Ministry of Finance published Cabinet Decision No. 81 of 2023 on the ‘Conditions for Qualifying Investment Funds for the Purposes of UAE Tax Law’ (the “Decision”).
In addition to the conditions setout under Article 10 of the UAE Tax Law, the Cabinet imposed additional cumulative conditions to be met by an Investment Fund (the “Fund”) to become eligible for an exemption from Corporate Tax ("CT") as a Qualifying Investment Fund.
Furthermore the Decision provides the conditions applicable to Investment Managers and Real Estate Investments Trusts to qualify as an Exempt Person from CT. This UAE Tax Law update shall focus on the conditions to exempt a Fund from CT.
All capitalised terms herein, unless otherwise stated, shall be defined as in the UAE Tax Law and the Decision.
II. Conditions to Exempt an Investment Fund from CT
In accordance with Article 2(1) of the Decision, a Fund qualifies for an exemption from CT where:
- the Fund’s main Business or Business Activities fall within the definition of Investment Business activities (as defined in the UAE Tax Law and the Decision), or where the main Business or Business Activities are ancillary or incidental to the Investment Business activities of the Fund;
- the ownership interest in the Fund, held by a single investor: (i) does not exceed thirty percent (30%) of the entire interests of the Fund where the Fund has less than ten (10) investors; or (ii) does not exceed fifty percent (50%) where the Fund has more than ten (10) investors;
- the Investment Manager of the Fund has a minimum of three (3) investment professionals; and
- the day-to-day management of the Fund is not undertaken by the investors of the Fund.
For the purposes of paragraph (1) above, an Investment Business is “the issuing of investment interests to raise funds or pool investor funds or establish a joint investment fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains resulting from the entity's acquisition, holding, management or disposal of investments, in accordance with the applicable legislation of the State.”
Where Business or Business Activities of a resident Investment Manager are attributed to a resident investment fund, the Taxable Income of the Investment Manager shall be adjusted to include the income attributed to the investment fund, in accordance with Article (20) of the UAE Tax Law.
A Fund shall be considered to have met the conditions set out under Article 2 (b) for the first two (2) Financial Years of the Fund, if the investors of the Fund provide sufficient evidence to the satisfaction of the Authority that the Fund shall be compliant with Article 1 (b) and subsequently meet the threshold, by the third (3rd) Financial Year. If the Fund fails to abide by the conditions under Article 1 (b) by the third (3rd) Financial Year, the Fund automatically ceases to qualify for an exemption from CT as of the third (3rd) Financial Year.
The above-mentioned conditions are cumulative and therefore, where a Fund does not meet any one (1) the above-mentioned conditions (or the respective exemptions), the Fund shall not qualify as a Qualifying Investment Fund within the definition of the UAE Tax Law and respectively shall not qualify for an exemption from CT.
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