UAE clarifies tax obligations for foreign investors in Qualified Investment Funds (QIFs) and Real Estate Investment Trusts (REITs)
The UAE Ministry of Finance has issued a new Cabinet Decision, No. 35 of 2025, to refine and clarify cross-border tax obligations for foreign investors. This decision replaces Cabinet Decision No. 56 of 2023 and aims to simplify compliance for foreign investors.
The specific conditions for a non-resident juridical investor to have a taxable presence (tax nexus) in the UAE under Cabinet Decision No. 35 of 2025 primarily relate to income derived from immovable property, such as land, buildings, data centers, or physical infrastructure, within the UAE. The decision defines nexus conditions where cross-border income becomes taxable, particularly in cases involving income from UAE-based physical infrastructure, including data centers, property rental, subletting, or sale of assets connected to immovable property, investments in UAE funds with significant real estate exposure, and any form of exploitation of immovable property located in the UAE.
Conversely, activities that do not trigger taxable nexus under this decision include pure software development and AI consulting services, the sale of digital products without relying on physical UAE infrastructure, and cloud services delivered from locations outside the UAE.
The decision outlines conditions for non-resident investors in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs) to have a taxable presence in the UAE. For QIFs, a taxable presence, or nexus, arises if the fund breaches the real estate threshold. If a QIF fails to meet the 80% distribution requirement, the nexus is created on the date the ownership interest is acquired. If a QIF fails to meet the diversity of ownership conditions during any tax period, a nexus is established.
For REITs, a nexus is triggered based on whether the 80% income distribution threshold is met, either at the dividend distribution date or the ownership acquisition date. However, the details regarding the establishment of a taxable presence for REITs are not provided in the given paragraph.
The decision supports the implementation of Federal Decree-Law No. 47 of 2022 on Corporate Tax. It continues to reinforce the UAE's commitment to maintaining an investor-friendly tax environment, as non-resident juridical investors exclusively investing in compliant QIFs or REITs, and not meeting the specified conditions, will not be considered to have a taxable presence in the UAE.
- The new Cabinet Decision, No. 35 of 2025, outlined specific conditions for a non-resident investor to have a taxable presence in the UAE, particularly in cases involving income from real estate, such as property rental, subletting, sale of assets connected to immovable property, and investments in UAE funds with significant real estate exposure.
- The decision defines that activities like pure software development and AI consulting services, the sale of digital products without relying on physical UAE infrastructure, and cloud services delivered from locations outside the UAE, do not trigger taxable nexus under this decision.
- The decision supports businesses, as non-resident juridical investors exclusively investing in compliant REITs or QIFs, and not meeting the specified conditions, will not be considered to have a taxable presence in the UAE, thus creating a favorable and business-friendly investment environment.
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