Taxation of Investment funds under the UAE corporate tax law – Introduction
Investment, external or internal, is an integral part of growth of the economy of every country . The higher the magnitude of investment in a country, the higher is the pace of economic activities and growth in a country. In order to make UAE as a leading destination for various investment funds and investment managers, the taxation of Investment funds under the UAE corporate tax law, includes certain tax benefit and a concessional tax regime .
Concession for investment funds
1. Considered as Fiscally transparent under the UAE corporate tax law
Under the proposed UAE corporate tax law, UAE investment funds and foreign investment funds, which are structured as unincorporated partnerships would be treated as as fiscally transparent. This would be in line with international tax treatment of such funds, wherein the income of the fund is taxable in the hands of its partners. Under the proposed UAE corporate tax law, the investment fund itself will not be liable to tax. The fund’s profits will be allocated to the investors, who shall be liable to tax on such income.
2. Regulated investment funds and Real Estate Investment Trusts
For Regulated investment funds and real estate investment trusts, a specific provision is proposed to be introduced under the law, wherein such , investment funds and investment trusts can make an application for exemption from the corporate tax.
The application for exemption, may be accepted subject to certain conditions. The conditions subject to which the exemption shall be given shall be available once the detailed law is introduced.
3. UAE based investment fund manager
In order to encourage, investment fund manager to be based out of UAE, the proposed law provides that , the mere fact that the investment fund manager is based in UAE, and is providing services to a foreign investment fund, would not result in such fund having a Permanent Establishment in UAE.
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Conditions for investment funds to get an exemption
1. Regulated funds
A recognised UAE regulatory authority must regulate the investment funds. Thus, an unregulated fund will not get the benefit exemption under the corporate tax law. Only such funds, which are regulated by one or more regulatory authority in the UAE, shall be eligible to claim an exemption.
Regulatory authorities for the purpose of the exemption may include, The securities and commodities authority, the financial services regulatory authority, and the Dubai financial services authority.
2. Maximum holding for 5 or fewer investors
A group of five (5) or fewer investors (and their Related Parties) should not have 50% or greater economic interest in the investment fund
3. Maximum holding for individual
No single investor (and their Related Parties) should have 20% or greater economic interest in the investment fund
4. Freely traded funds
Interest in the investment fund should be freely traded on a stock exchange, whether it is a UAE stock exchange or a foreign stock exchange. There should be sufficient liquidity available for the fund in the market.
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