Abu Dhabi, UAE–The Ministry of Finance (MoF) of the UAE has introduced additional conditions for “Qualifying Investment Funds” on the taxation of corporations and businesses.
The new cabinet decision will be effective from 1st August 2023, except for clause (2) of Article (12), which will be effective from 1st December 2023.
The decision aims to strengthen the integrity of the corporate tax system and enhance the UAE’s competitiveness as an investment hub.
The new conditions require investment funds, excluding Real Estate Investment Trusts (REITs), to be primarily engaged in investment business activities. Ancillary or incidental activities should not exceed 5 percent of their total annual revenue.
The decision also stipulates that a single investor and its related parties should not hold more than 30 percent or 50 percent of the ownership interests in the investment fund, depending on the number of investors.
The fund should also be managed by an investment manager employing at least three investment professionals, and investors should not control the day-to-day management of the fund.
For the first two financial years of a fund’s establishment, the diversity of ownership criteria will be non-binding, provided the fund intends to diversify its ownership thereafter.
For REITs to be exempt from corporate tax, they must hold real estate assets, excluding land, exceeding $27.22 million in value.
At least 20 percent of its share capital must be publicly listed or wholly owned by two or more institutional investors, and an average real estate asset percentage of at least 70 percent must be maintained annually.
Younis Haji Al Khoori, Under-Secretary of the Ministry of Finance, commented on the decision, stating that it balances the UAE’s competitiveness as an investment hub while maintaining the integrity of the Corporate Tax system.
In addition, the MoF announced Cabinet Decision No. (75) of 2023, which outlines administrative penalties for violations related to the Corporate Tax Law. The penalties, effective from 1st August 2023, are designed to ensure successful implementation and compliance with the Corporate Tax Law without burdening compliant UAE businesses.
Al Khoori emphasized the importance of corporate tax compliance, stating it supports the implementation of the Corporate Tax system in the UAE and promotes sustainable economic growth by providing a conducive legislative environment.
The MoF also announced Cabinet Decision No. (74) of 2023 on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures (New Tax Procedures Law).
The decision repeals and replaces the existing Executive Regulation on Tax Procedures and aligns definitions, procedures, and processes with the New Tax Procedures Law, which came into effect on 1st March 2023.
The new cabinet decision provides guidance on the maintenance of accounting records and commercial books, registration conditions for Tax Agents, and procedures for de-listing a Tax Agent.
It also covers tax payment and refund procedures, obligations of a trustee in cases of bankruptcy, and procedures related to reconciliation in tax evasion crimes.