UAE Tax Rule: Impact on Foreign Investors

New UAE Tax Rule: When Are Foreign Investors and Non-Residents Tax Liable?

The Ministry of Finance of the United Arab Emirates has issued a new decision clarifying when a foreign non-resident individual or legal entity is considered tax liable under the corporate tax law in the country. The aim of the decision is to provide clear guidelines on the tax obligations of non-resident investors investing in Qualifying Investment Funds (QIF) or Real Estate Investment Trusts (REIT).

When Does Tax Liability Arise?

According to the new regulation, a tax relationship (known as 'nexus') arises between the UAE and the non-resident legal entity if the investment exceeds a certain property involvement threshold. The investor may fall under corporate tax scope in the following cases:

1. For Qualifying Investment Funds (QIF):

If the fund distributes at least 80% of its annual income within nine months following the end of the financial year, the tax relationship is established on the day of yield payment.

If the fund does not meet the 80% distribution threshold, the nexus is established on the day of acquiring the ownership stake.

2. For Real Estate Investment Trusts (REIT):

The same principles apply: the 80% distribution threshold is decisive. If met, the taxable presence becomes effective on the day of payment; if not, the acquisition of ownership initiates the tax liability.

When Is There No Tax Liability?

If the non-resident legal entity invests solely in QIF and/or REIT and does not exceed the property investment threshold, and the distribution conditions are met, no tax relation is created in the UAE. This provision significantly reduces the administrative and compliance burden for foreign investors.

Why Is This Decision Important?

This updated regulation, replacing the previous Cabinet Decision 56/2023, is crucial for several reasons:

It provides certainty for non-resident investors regarding when they might become tax liable.

It reduces the administrative burdens for investors meeting the specified conditions.

It preserves the UAE's competitiveness as an international financial and investment hub.

It supports transparency and legal certainty, which is important for long-term capital inflow.

Summary

The new decision by the UAE underlines the country's commitment to creating a predictable and investor-friendly tax environment. With the clarified regulations, non-resident investors can better understand under what circumstances they might become taxable in the country. The new framework is particularly useful for those looking to benefit from economic growth in the UAE through financial or real estate funds without facing excessive compliance risks.

(The source of the article is the official statement from the Ministry of Finance.)