UAE Updates Tax Rules for Investment Funds and Foreign Investors

The key takeaways from the new Cabinet Decisions include:

While these updates may require adjustments to existing investment strategies, the UAE's strong economic fundamentals, strategic location, and pro-business environment continue to make it an appealing choice for global investors.

Cabinet Decision 34 of 2025 revamps the tax framework for investment funds in the UAE, providing a corporate tax exemption for QIFs and allowing certain limited partnerships to be treated as tax-transparent. To qualify as a QIF and maintain tax-exempt status, funds must meet several conditions, including:

A grace period is maintained for new funds to meet the Diversity of Ownership Condition within 2 years. Temporary breaches not exceeding 90 days in a calendar year or occurring during liquidation/termination don’t affect the QIF's exempt status.

Investors in REITs will be subject to tax on 80% of the real estate income derived through the REIT if certain conditions are not met. Foreign juridical investors in REITs that meet the relevant conditions are only required to register when dividends are distributed, provided the REIT distributes 80% or more of its income within 9 months of the financial year-end.

Cabinet Decision No. 35 of 2025 outlines the circumstances under which a non-resident juridical investor in QIFs or REITs is deemed to have a taxable presence in the UAE. This includes scenarios where the fund breaches the 10% real estate asset threshold, fails the ownership diversification test, or does not distribute at least 80% of its income within 9 months from its financial year-end.

Fund managers, investors, and sponsors should carefully review their current fund structures, investor mix, and real estate exposure in light of these new UAE tax rules. Even offshore or historically exempt funds may now be subject to corporate tax liabilities if certain thresholds are not met.