On 27 March 2025, the UAE Cabinet issued Decision No. 34 of 2025, revamping the tax framework for Qualifying Investment Funds (QIFs), Real Estate Investment Trusts (REITs), and Qualifying Limited Partnerships (QLPs) under the Corporate Tax Law (Federal Decree-Law No. 47 of 2022).

This decision sets out clear eligibility criteria, investor implications, and tax exemption rules. It repeals Cabinet Decision No. 81 of 2023 and is applicable for tax periods beginning on or after 1 January 2025.

A. Qualifying Investment Funds (QIFs)

Article 2 outlines conditions to be met by QIFs to apply the tax exemption from UAE Corporate Tax under the Cabinet Decision No. 34 of 2025.

• The principal business activities conducted by QIFs must be Investment Business.
• Investors must not have control in day-to-day operations.
• Ensure that investors are provided with all relevant information, documents, and data required to accurately calculate their adjusted Taxable Income in accordance with this Decision.

Article 2(2) outlines how to treat the activities and income of a resident Investment Manager when determining whether an Investment Fund qualifies for tax exemption.

Attribution of Income

• If a resident Investment Manager’s business activities are attributed to a resident investment fund, then the Investment Manager must include the net income from those activities in its own taxable income (as per Article 20 of the Corporate Tax Law).

Investment Business Qualification

These attributed activities are considered Investment Business if:

• They are subject to Corporate Tax in the UAE through the Investment Manager; or
• They are conducted by an Investment Manager who meets the conditions under Article 15(1) (which deals with income of Non-Resident Persons), but treated as if it applies to Resident Persons here.

Ancillary Activities Threshold

Any non-core (ancillary or incidental) business activities conducted by the fund will still be acceptable, provided they generate no more than 5% of the fund’s total revenue in the relevant financial year.

How investors in a Qualifying Investment Fund (QIF) are taxed under UAE Corporate Tax Law?

• Profit Distributions Are Tax-Free: Investors in a QIF that is exempt from corporate tax do not pay tax on distributions (i.e., profits received) from the fund.
• Exceptions for Large Ownership or Control: A juridical investor (like a company) must include its share of the fund’s net profit in its taxable income if:
  • The QIF has <10 investors and the investor (plus related parties) owns/controls 30% or more of the fund.
  • The QIF has 10 or more investors, and the threshold increases to 50% or more.
• Grace Period: The above exception does not apply for the first 2 financial years of the QIF’s establishment if the fund intends to meet the thresholds afterward.
• Temporary Breaches Allowed: If thresholds are exceeded due to factors beyond control for ≤90 days, or during fund liquidation, the exception won’t apply.
• Tax on Real Estate Income (if >10%): If UAE real estate assets exceed 10% of total fund assets, 80% of the Immovable Property Income must be included in the investor’s taxable income, unless the fund distributes at least 80% of that income within 9 months.
• Distribution Exemption: If the fund distributes 80% or more of its Immovable Property Income within 9 months, no tax adjustment is required for investors who exited before receiving it.
• Relief on Sale of Ownership: If an investor sells their stake, any previously taxed but undistributed profits can be excluded from taxable income (up to the gain on sale).
• Depreciation on Real Estate: The investor’s taxable income must be increased by the depreciation amount previously claimed when either the fund disposes of the immovable property or the investor disposes of their ownership interest, whichever occurs first.
• Tax Agent for Non-Residents: Non-resident investors can appoint a Tax Agent (directly or via the Qualifying Investment fund or Investment manager) to handle UAE tax compliance.
• Timing of Income Recognition: Immovable Property Income is allocated based on either:
  • The period to which a profit relates (if 80% is distributed), or
  • The holding period (if 80% is not distributed).

B) Real Estate Investment Trusts (REITs):

Article 4 outlines the eligibility criteria and tax implications for REITs seeking exemption from UAE Corporate Tax under the Cabinet Decision No. 34 of 2025.

A REIT must meet all the following conditions to be treated as a Qualifying Investment Fund:

• Property Threshold: The REIT (including wholly owned exempt entities) must own or manage UAE immovable property (excluding land) worth more than AED 100 million.
• Investor Base: It must satisfy one of the following:
• • Float at least 20% of its shares on a Recognized Stock Exchange (without subscribing to them itself or through related parties); or
  • Be wholly owned by two or more institutional investors, where at least two are unrelated.
• Income-Generating Assets: At least 70% of its total assets must be rental income-generating properties (not held just for capital appreciation).
• Investor Transparency: Must provide all necessary documents and data to investors for calculating their taxable income.
• Cross-References to Article 3: The following provisions from Article 3 also apply to REITs:
  • Appointment of a Tax Agent by non-resident investors.
  • Distribution-based tax exemptions.
  • Depreciation treatment on real estate.
  • Income allocation methods

Tax on Immovable Property Income

• 80% of the prorated Immovable Property Income must be included in the taxable income of juridical investors, unless the REIT distributes at least 80% of that income within 9 months of the year-end.
• If an investor sells their stake before receiving the distribution, their income will not be adjusted, as long as the REIT has distributed the required percentage.

Depreciation Reversal upon Disposal

• Investors who earlier adjusted taxable income for depreciation must add it back in the year when:
  • The REIT disposes of the property, or
  • The investor sells their ownership interest, whichever comes first.

Treatment of Investment Manager Activities

• Activities of a resident Investment Manager are considered part of Investment Business if they:
  • Are subject to UAE Corporate Tax; or
  • Satisfy conditions similar to those set out for Non-Resident Persons (adapted for REITs).

Definition of Institutional Investors

• A REIT can be owned by any combination of the following institutional investors:
  • Government Entities or Controlled Entities;
  • Foreign governments and their entities;
  • International organizations;
  • Banks and Insurance Providers;
  • Pension or social security funds;
  • Licensed investment funds;
  • Any other legal entities as approved by the Authority.

C) Qualifying Limited Partnerships (QLPs):

Conditions for a QLP to be Exempt from Corporate Tax

A QLP must meet all of the following:

• Core Activity:
  The QLP must be engaged primarily in Investment Business, and any other activity must be ancillary or incidental, contributing no more than 5% of total revenue.
• No UAE Real Estate Income:
  It must not earn any income from UAE-based immovable property, including rights in rem, leasing, sale, or use of property.
• No Tax Avoidance Intent:
  The QLP’s main or principal purpose must not be to avoid Corporate Tax.

Exemption for Subsidiaries Owned by a QLP

A juridical person fully owned and controlled by a tax-exempt QLP can also apply for exemption, if:

• It either:
  • Carries out activities on behalf of the QLP,
  • Holds assets or invests funds only for the QLP, or
  • Conducts activities incidental to those of the QLP.
• It does not earn income from UAE immovable property.

Investment Manager Attribution Rules

If a resident Investment Manager’s activities are attributed to the QLP:

• That income must be included in the manager’s taxable income.
• Such activities will be considered Investment Business if:
  • They are taxed in the UAE via the Investment Manager, or
  • The Investment Manager meets conditions under Article 15(1) of the Corporate Tax Law (adapted to apply to Resident Persons).

Investor Tax Treatment

• Distributions from a QLP are not taxable for investors.
• However, a juridical person investor must include their pro-rated share of the QLP’s net income (and its exempt subsidiaries’ income) in their own taxable income—after excluding the Investment Manager’s share.

Non-Resident Investors

A non-resident investor may appoint a Tax Agent directly or through the QLP or Investment Manager to handle compliance.

Loss of Exempt Status

If the QLP:

• Does not apply for exemption in its first eligible tax period, or
• Fails to meet any of the conditions for exemption in a tax period,

It loses its exempt status for that tax period and the following four tax periods.

Opening Balance Sheet for Corporate Tax

When a QLP loses its exemption, it must determine its opening tax values as follows:

• For pre-exemption assets, use closing balances from the last year before exemption, adjusted for capitalized costs.
• For assets acquired during exemption, use acquisition cost plus capitalized costs (both based on accounting standards and arm’s length principles).

Fallback Exemption Options

If a QLP fails to qualify under this Article, it may still apply for other available exemptions under the Corporate Tax Law.

Applicability to Subsidiaries

All the loss-of-status provisions also apply to QLP-owned juridical persons (subsidiaries).

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