Page 10 - ICAI UAE TAX UPDATE_MAY 2024

3.2 Investment Funds & Investment Fund Manager Exemption in the UAE

On May 6, 2024, the Federal Tax Authority (FTA) released Tax treatment for Investment Funds as per the
a Corporate Tax Guide focusing on “Investment Funds & UAE CT Law
Investment Mangers” to offer general insights into the
Corporate Tax (CT) treatment for Investment Funds & Treatment of Resident Persons
Investment Managers. Further, also expounding on the
Investment Manager Exemption. Investment funds incorporated or managed in the
UAE are treated as Resident Persons and are subject
Following are the key takeaways that can be summarized to Corporate Tax. However, they can qualify as Exempt
from the Corporate Tax Guide issued by the FTA: Persons by registering as QIFs, with investors who are
taxable person be taxed individually on their portion of
Background of Investment funds the fund’s income.

Investment funds invest funds received from investors Treatment of Unincorporated Partnerships
on a collective basis in accordance with a defined
investment policy. In return, investors share in the profits Unincorporated Partnership investment funds are
of the investment fund. These funds can take on different treated as transparent for tax purposes, mirroring the tax
legal structures, such as joint liability companies or treatment if investors had directly invested. Therefore,
investment trusts. these partnerships are not classified as Taxable Persons
in the UAE, with income attributed directly to the
Investors participate in these funds with the aim of investors.
generating returns on their investments. Meanwhile,
professional investment managers are tasked with Treatment of Non-Resident Investment Funds
making investment decisions on behalf of the fund,
adhering to pre-established investment policies and Non-resident Investment Funds are only taxed in the
strategies. UAE if managed within the country. Otherwise, they
are not considered residents. If they have a permanent
Managers typically earn compensation in the form of establishment or income sourced from the UAE or nexus
fees, which can include management fees based on in the UAE, they may face taxation. Income related to a
the total assets under management and performance permanent establishment is taxed, while state sourced
fees based on the fund’s performance relative to certain income could incur withholding tax, presently at 0%.
benchmarks or targets. Nexus applies to non-resident juridical persons earning
from UAE immovable property.
Investment funds in the UAE
CT Treatment for Investment Managers
Investment funds in the UAE encompass public funds
available to all and private funds for professional Resident Investment Managers are subject to UAE
investors only. They can be open-ended, with variable Corporate Tax on fees earned from brokerage or
capital, or close-ended, with fixed capital. Funds may investment management services, similar to other
focus on specific themes, asset classes, or sectors, business income.
such as private equity, real estate, or Islamic finance.
Various terms describe fund types, sometimes loosely. Non-Resident Investment Managers may also be liable
Regulatory exemptions apply to qualifying funds for Corporate Tax in the UAE if they have a permanent
meeting specific conditions. establishment (PE), state sourced income, or nexus in
the UAE. Fees related to a PE are taxable, while state
Further, In the context of the CT Law, the provisions sourced income may face withholding tax (WHT) subject
of the Qualifying Investment Fund exemption and the to 0%.
Investment Manager Exemption are not restricted to a
specific investment fund or strategy and can apply to Qualifying Investment Funds (QIFs)
any investment fund, where the relevant conditions are
met. It’s essential to recognize that as Exempt Persons
under UAE Corporate Tax Law, QIFs are not eligible

10 www.icaidubai.org

UA E TAX UPD ATE NEWSLET TER ISSUE 02 - May 2024