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The exclusion from Corporate Tax applies to investment Apportionment of expenditure:
activities conducted in the UAE, which is in relation to Apportionment methods are criteria used to determine
land or real estate property located in the UAE and/or how expenses can be assigned or distributed across
outside of the UAE different activities. The apportionment method chosen
must be logical and must fairly represent the benefit
With reference to the term “indirectly”, the income that the expense generates for each income component.
received by a natural person through an intermediary
can qualify for the Real Estate Investment exclusion, The apportionment method should be used consistently
depending on the exact facts and circumstances. For from one Tax Period to the next, unless there is a change
Corporate Tax purposes, the Taxable Person is the in fact pattern which justifies a change in apportionment
natural person conducting the Business and not the sole or methodology.
establishment or sole proprietorship.
In the case of co-ownership of land or real estate
Transactions between Related Parties, must meet the property by multiple persons, each joint owner should
arm’s length standard for Corporate Tax purposes. Such individually assess whether their income is from Real
transactions would include, but not be limited to, lease Estate Investment based on their individual facts and
agreements between a natural person and its Related circumstances.
Parties, and property management agreements between
a natural person and its Related Parties. General Anti-abuse Rule (GAAR): The General Anti-
abuse Rule allows the FTA to counteract or adjust any
If income from Real Estate Investment is excluded from transaction which lacks commercial substance or does
the scope of Corporate Tax, then expenditure that relates not reflect economic reality and is undertaken for the
directly or indirectly to Real Estate Investment income is main purpose of, or where one of the main purposes
not deductible for Corporate Tax purposes is, obtaining a Corporate Tax advantage that is not
consistent with the intention of the Corporate Tax Law.
A natural person should be able to clearly demonstrate
the basis for separating real estate income earned in if a real estate transaction or arrangement is entered
a non-Business capacity from their other Business or into with a main purpose of obtaining a Corporate Tax
Business Activities to benefit from the exclusion. advantage, such as the Real Estate Investment exclusion,
and this lacks commercial substance as well as being
In the case of co-ownership of land or real estate inconsistent with the intention of the Corporate Tax Law,
property by multiple persons, the income derived from the FTA can, for instance, require the relevant income to
Real Estate Investment activity must be allocated to be treated as Taxable Income.
each owner. Where the owner is a natural person, their
allocated income will be out of scope of Corporate Tax if
they do not conduct the Real Estate Investment activity
through a Licence
If income from Real Estate Investment is excluded from
the scope of Corporate Tax, then expenditure that relates
directly or indirectly to Real Estate Investment income is
not deductible for Corporate Tax purposes.
Income derived from Real Estate Investment that
benefits from the exclusion is outside the scope of
Corporate Tax and shall not be included in the natural
person’s Turnover to compute AED 1 million threshold
as discussed above.
It is necessary to consider whether the income may be
Taxable Income derived from the use of the real estate
for the purposes of the natural person’s Business, and
thus, would not benefit from the Real Estate Investment
exclusion for Corporate Tax purposes.
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UAE TAX UPDATE NEWSLETTER ISSUE 07 - October 2024