The UAE's Corporate Tax Law sets out the criteria to establish if an investment fund qualifies for exemption from Corporate Tax. An investment fund, in this context, refers to a structured entity primarily engaged in pooling investor funds and investing them based on a defined policy. This category encompasses various entities such as real estate investment trusts, mutual funds, private equity funds, and other alternative investment vehicles. For compliance with UAE's Corporate Tax Regulations, it's advisable for Taxable Persons to seek guidance from Tax Consultants in the UAE.
Criteria for Qualifying the Investment Fund Structure
Qualifying the structure for an investment fund is typically influenced by legal, regulatory, and tax-related considerations, as well as the preferences of sponsors and investors. Regardless of the fund type, the Corporate Tax Law aims to ensure tax neutrality. This implies that both domestic and foreign investors should be in a similar tax position as if they had directly invested in the fund's underlying assets. This principle of neutrality between direct and collective investments is commonly followed worldwide, often resulting in exempting such entities' income from taxation.
If an investment fund is not organized as a fiscally transparent Unincorporated Partnership for Corporate Tax purposes, it can seek an exemption from Corporate Tax from the Authority. To qualify, the fund needs to meet conditions outlined in the Corporate Tax Law. The same applies to investment funds structured as limited partnerships, unit trusts, or other transparent arrangements if they apply to the Authority to be recognized as Taxable Persons.
Corporate Tax Exemption for Eligible Investment Funds
The exemption from Corporate Tax can extend to wholly owned and controlled UAE entities utilized by Qualifying Investment Funds to manage their assets or investments. However, the exemption doesn't cover individuals or entities offering management services to these funds. Such individuals/entities are subject to Corporate Tax unless they meet specific criteria as Qualifying Investment Fund Managers.
Furthermore, both the investment fund itself and its overseeing manager must be under regulatory oversight by a competent authority in the UAE or a recognized foreign authority. The nature of fund or investment management activities determines regulatory coverage. If these activities occur in the UAE, the relevant mainland or Free Zone authority responsible for investment fund operations or management supervision should regulate the fund or manager. Notable UAE competent authorities include the Securities and Commodities Authority, ADGM Financial Services Regulatory Authority, and DIFC Dubai Financial Services Authority.
Additionally, a UAE-based investment fund can be managed by an individual outside the UAE. Though a non-resident fund manager may face licensing challenges in the UAE, Corporate Tax exemption remains available if the foreign manager is duly regulated by a recognized foreign authority overseeing fund management activities.
Trading Interests and Consultation
Investment fund interests must be traded on a Recognized Stock Exchange or be widely available to investors through marketing. A Recognized Stock Exchange can be a UAE-based exchange regulated by the competent authority or a foreign exchange holding equivalent status.
Seek the Expert Services of Tax Consultants in UAE
To ascertain whether an investment fund qualifies and meets marketing criteria, the fund type and Corporate Tax Law provisions come into play. It is prudent for Taxable Persons to engage Tax Consultants in Dubai to effectively navigate Corporate Tax Regulations. If you require assistance, feel free to contact us for expert guidance.