In a strategic effort to enhance the UAE’s appeal as a premier global investment hub, the UAE Cabinet has issued Decision No. 34 of 2025, introducing preferential tax treatment for investors in Qualified Investment Funds (QIFs). The move, announced by the UAE Ministry of Finance, underscores the country’s commitment to fostering both foreign and domestic investment by providing a transparent and supportive regulatory and tax environment.

Key Features of the New Tax Framework

The decision outlines several pivotal provisions designed to regulate the tax treatment of QIFs while encouraging investment growth:

• Corporate Tax Exemption: Income generated through QIFs will be exempt from corporate tax, provided specific criteria are met.

• Real Estate Holdings Cap: To qualify for the exemption, a QIF’s real estate assets must not exceed 10% of its total holdings.

• Diversified Ownership Requirement: Funds must maintain a broad investor base, preventing dominance by a single investor or related group.

Flexible Compliance Measures

Recognizing the need for a smooth transition, the decision incorporates practical compliance measures:

• Grace Period for New Funds: Newly established funds will have two years to meet ownership diversification requirements, allowing time to attract a diverse range of investors.

• Temporary Non-Compliance Allowance: Funds may temporarily breach diversification rules for up to 90 days per year, provided the lapse is not due to liquidation or dissolution.

Consequences of Non-Compliance

The decision clarifies the implications of failing to meet regulatory conditions:

• Ownership Diversification Breach: If a fund fails to maintain diversified ownership, the tax exemption will only be revoked for the non-compliant investor’s share of income (assuming other conditions are met).

• Exceeding Real Estate Threshold: If real estate holdings surpass the 10% limit, 80% of the income from these assets will become taxable.

Special Provisions for REITs

Real Estate Investment Trusts (REITs) and similar entities will benefit from a partial tax exemption:

• Only 80% of real estate income will be subject to corporate tax, balancing regulatory oversight with investor returns.

Encouraging Foreign Investment

To further attract international capital, the decision streamlines compliance for foreign investors:

• Simplified Registration for Foreign Investors: Foreign corporate investors distributing at least 80% of their income within nine months of the financial year-end only need to register for corporate tax at the time of distribution, reducing administrative burdens.

Pass-Through Tax Treatment for Limited Partnerships

Aligning with global best practices, the decision allows certain limited partnerships to qualify for transparent (pass-through) tax treatment:

• Taxes are applied at the partner level rather than the entity level, ensuring fair treatment across different investment structures.

Strategic Impact

This initiative is a key component of the UAE’s broader economic diversification strategy, reinforcing its position as a leading destination for global investment. By offering clear tax incentives and regulatory clarity, the UAE aims to attract long-term capital and strengthen its financial services sector.

For fund managers and investors, understanding these regulations is essential. Professional advisory services can provide critical support in ensuring compliance and maximizing the benefits of this new framework.

Conclusion

The UAE’s introduction of corporate tax exemptions for Qualified Investment Funds marks a significant step in enhancing the nation’s investment landscape. By fostering a business-friendly tax regime, the UAE continues to drive economic growth, attract global capital, and solidify its status as a world-class financial hub.