Under Article 11 of the UAE’s Federal Decree Law No. 47 of 2022 – the Corporate Tax Law – a Non-Resident Person becomes a taxable person if they are deemed to have a nexus in the UAE, as defined by a Cabinet decision based on the Minister’s recommendation.
Cabinet Decision No. 56 of 2023, issued on May 30, 2023, clarified that a nexus is established if a non-resident earns income from any immovable property located in the UAE. This was further expanded by Cabinet Decision No. 81 of 2023 (issued on July 18, 2023), which clarified that certain types of income – such as dividends and capital gains – may be treated as taxable if linked to UAE-based investments.
For non-resident juridical investors, however, income earned from qualifying investment funds (QIFs) or real estate investment trusts (REITs) is not subject to UAE Corporate Tax, provided they do not have a taxable nexus in the country.
Key Updates
The recently announced Cabinet Decision No. 35 of 2025, in conjunction with Cabinet Decision No. 34 of 2025, aims to minimize unintended tax exposure and compliance burdens for foreign investors in UAE-based funds. Although the full text of the decision is yet to be released, the key takeaways are as follows:
1. Taxability Limited to Specific Scenarios
Non-resident juridical investors in UAE-based QIFs or REITs will generally not be considered to have a taxable presence in the UAE if the fund meets certain conditions:
- QIFs must not exceed a 10% threshold in real estate asset holdings.
- The fund must maintain ownership diversity.
- At least 80% of the fund’s income must be distributed within nine months of the end of the financial year.
So long as these conditions are met, passive investment in such funds does not trigger UAE tax registration or liability.
2. Events That Can Trigger a Nexus
Despite the general exemption, a nexus – and thus UAE tax liability – can arise in the following cases:
- At the time of dividend distribution, if the 80% distribution condition is fulfilled.
- At the time of ownership acquisition, if the fund fails to meet the distribution threshold.
- For QIFs, a nexus also arises if the fund breaches the ownership diversity requirement during any tax period.
3. Investor Protections in Case of Non-Compliance
To ensure fair treatment of investors, safeguards have been put in place for instances where a fund does not meet the qualifying criteria:
- If a QIF’s real estate holdings exceed the 10% threshold, only 80% of income from those assets will be taxable, with the remaining 20% exempt.
- If there’s a breach of the ownership diversity condition, the fund has a 90-day grace period to restore compliance without losing QIF status.
- Most importantly, only the investor(s) responsible for the breach will bear the tax consequences. The fund itself retains its qualifying status for other compliant investors.
This approach ensures that one investor’s actions do not jeopardize the tax position of others, preserving the overall tax benefits for the fund.
4. Growing Interest in UAE-Based Funds
As of mid-2024, the UAE Securities and Commodities Authority (SCA) reported an 83% increase in licensed fund management firms, reaching 33 (up from 18 the previous year). Additionally, 25 new fund applications were under review, with the total number of UAE-based investment funds expected to reach 58.
The UAE’s REIT market is also expanding, with active players such as Emirates REIT and ENBD REIT contributing to growing investor interest.
Conclusion
These recent Cabinet decisions provide much-needed clarity for foreign institutional investors by:
- Clearly defining when a taxable nexus arises,
- Laying out precise conditions for maintaining QIF/REIT status,
- Ensuring tax exposure is limited and predictable.
Fund managers can now better align with QIF requirements, helping their foreign investors stay outside the UAE tax net. These reforms further cement the UAE’s position as a low-friction, investor-friendly jurisdiction, allowing both investors and fund managers to plan and manage tax compliance with greater confidence.
