New UAE corporate tax rules on foreign investors is just right in Trump era

Dubai: Foreign investors looking at UAE assets have been provided with extra flexibility on their obligations under the country’s corporate tax rules through two new updates issued in recent days.

These apply to investments foreign investors make through ‘qualifying funds’ in the UAE, which means they will not be paying any corporate tax on that income.
The new UAE rules assume extra significance in the light of the new US tariffs – and what this would mean for global investment flows.

By offering extra clarity and transparency on what sort of foreign investment funds come under the local tax rules, the UAE has ‘captured the moment’, sources say.

“You got global investors who fear what will happen to their investments – and they want to see pockets of market stability,” said an analyst. “The UAE has provided extra reassurance to foreign investors wanting to come in and whether they are eligible for tax or not.”
Zero corporate tax on investment funds
To be considered as zero corporate tax rated ‘qualifying funds’, they must ensure that:

· Less than 10% of the funds are in real estate assets.

· The funds must have less than 10 investors and their individual ownership interest should be less than 30%. In case of more than 10 investors, the ownership threshold is less than 50%.

· An ‘ownership breach’ is not applicable for the first 2 years as long as it was not intentional. Subsequent breaches have a grace period of 90 days.

“The new UAE rules are favorable for foreign investors as long as the investment fund qualifies for corporate tax exempt status,” said Girish Chand, Senior Partner at MCA Gulf.

“If we assume a foreigner investor has funds in a qualifying investment fund – then the income generated by the fund would be exempt from Corporate Tax provided it fulfills the exempt condition. “Which also means the share of income earned by the foreign investor would be exempt as well.

“Only in cases where the fund does not fulfill the CT exempt conditions, would the investor be considered as having a ‘nexus’ in the UAE. Then, the investor would be required to register and pay UAE corporate tax.”

New rules and real estate funds
The UAE’s latest tax updates will also have a bearing on real estate investment trusts (REITs), which are popular with domestic and international investors wanting to generate fair-to-high returns from the local property market.

“What the new decisions do is reduce the compliance burden on foreign investors providing clarity and stability in attracting institutional investment into UAE real estate,” said Sameer Lakhani, Managing Director at Global Capital Partners.

“It provides extra clarity on the leeway that foreign investor have in their ability to invest in UAE real estate. This will paving the way for greater institutional ownership.”

This is what the new rules say on real estate investments:
· Foreign investors in REITs that distribute 80% or more of their income within nine months of the financial year-end are only required to register for corporate tax on the date of the dividend distribution.

· This streamlines compliance procedures and reduces administrative burdens for foreign investors.