The Ministry of Finance in the United Arab Emirates (UAE) has recently announced significant updates to its corporate tax framework, aimed at enhancing the investment environment for foreign investors. The issuance of Cabinet Decision No. 35 of 2025 marks a pivotal change in how non-resident juridical investors in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs) are taxed in the UAE.
This new directive replaces the earlier Cabinet Decision No. 56 of 2023 and clarifies the conditions under which a foreign (non-resident) individual or entity is considered to have a taxable presence, or ‘nexus’, in the UAE. The focus is primarily on defining the circumstances under which foreign investors will be subject to taxation.
Under the new rules, a nexus for a non-resident investor in a QIF is established if the fund breaches the real estate investment threshold. Specifically, this nexus arises either on the date of dividend distribution, provided that the QIF allocates at least 80 percent of its income within nine months of the financial year-end, or on the date of acquiring the investment if the QIF fails to meet this distribution requirement.
Additionally, a nexus will also be created for a non-resident juridical investor in a QIF that does not meet the required diversity of ownership conditions during the tax period in which the failure occurs. This same structure applies to REITs: if a REIT distributes 80 percent or more of its income on time, the tax link is based on the dividend payment. If not, it applies from the date of investment.
Importantly, if these conditions are not met, non-resident investors in QIFs or REITs will not be taxed in the UAE. This decision significantly reduces the compliance burdens for foreign investors, reflecting the UAE government's strong commitment to creating an attractive investment environment.
Furthermore, the UAE Ministry of Finance has also introduced Cabinet Decision No. 34 of 2025, which outlines the framework for Qualifying Investment Funds and Qualifying Limited Partnerships under the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This decision replaces Cabinet Decision No. 81 of 2023 and aims to further promote growth in the national economy by attracting more investments.
Among the most notable provisions of this new decision is the introduction of favorable tax treatment for investors deriving income from a QIF. Income derived through the fund will not be subject to UAE Corporate Tax, provided that the real estate asset threshold of 10 percent or the diversity of ownership conditions are not breached.
To enhance flexibility, the new decision offers QIFs a grace period to rectify any breaches of the diversity of ownership requirements, even beyond the initial two-year qualification window. However, these breaches must not exceed a cumulative total of 90 days annually and cannot occur during the liquidation or termination of the fund.
Moreover, if ownership diversity conditions are violated, the exemption from corporate tax will only be lost for the non-compliant investors, as long as the fund meets all other necessary criteria. Additionally, if a QIF exceeds the 10 percent real estate threshold, only 80 percent of its real estate income will be subject to taxation.
For foreign juridical investors in REITs and QIFs, the regulations stipulate that those who meet defined conditions and distribute at least 80 percent of their income within nine months after the financial year-end will only need to register for Corporate Tax at the time of dividend distribution. This streamlines compliance procedures and reduces administrative burdens for foreign investors.
In a move to align with international standards, the new decision has also introduced a provision allowing certain limited partnerships to qualify for tax-transparent status, which reflects the UAE's commitment to promoting global best practices in taxation.
Overall, these updates represent a concerted effort by the UAE government to create a more favorable environment for foreign investment, reinforcing its status as a leading investment hub. By clarifying the tax obligations for foreign investors and providing flexibility in compliance, the UAE is positioning itself to attract a greater influx of capital and foster economic growth.
This proactive approach not only benefits foreign investors but also supports the UAE’s broader economic objectives, ensuring that the nation remains competitive in the global marketplace.
