UAE issues corporate tax rules for foreign investors and entities

The National

07-04-2025

The UAE has announced rules that will make a non-resident or juridical entity liable to pay corporate tax in the country, as it seeks to remain competitive globally and ease the compliance burden for foreign investors. The Ministry of Finance issued Cabinet Resolution No 35 of 2025 determining the relationship of a non-resident person in the UAE for the purposes of Federal Decree-Law No 47 of 2022, regarding corporate and business tax. The new resolution defines the cases in which a non-resident legal person, who is an investor in a qualifying investment (QIF) fund or a real estate investment trust (Reit), has a link in the UAE and is, therefore, subject to tax. 'The resolution lays out the rules for when non-resident natural or juridical persons are taxable in the UAE,' said David Daly, a partner at the Gulf Tax Accounting Group in the UAE and a columnist for The National. 'The UAE is belatedly handing a three-edged sword to foreign investors. One side is the certainty of this Cabinet decision and general recognition of the requirement to raise tax revenue. The second is balancing that requirement against remaining internationally competitive in what today is an incredibly fluid global marketplace. 'The final side is the floating anchor. From what date does this law apply? If it's June 2023, when corporation tax launched, then the ship has sailed as decisions have long been made. If it's the date the law was issued, then good. There is time to review and reconsider. The bad? How many more of these decisions are coming? And covering what?' The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1, 2023. It brought the income of companies exceeding Dh375,000 ($102,100) within the taxable bracket. Taxable profits below that level will be subject to a tax of 0 per cent. The Ministry of Finance also confirmed in 2023 that business owners in the country would be subject to corporate tax only if their turnover in a calendar year exceeds Dh1 million, ensuring that only business or business-related activity income is taxed. The new decision clarifies when a non-resident juridical investor in a QIF or Reit is considered to have a link in the UAE, thus becoming subject to taxation under Federal Decree-Law No 47 of 2022 on the Taxation of Corporations and Businesses. This follows the earlier issuance of Cabinet Decision No 34 of 2025, which focused on QIFs and qualifying limited partnerships. Under the new decision, a link for a non-resident juridical investor in a QIF will arise under two circumstances. If the QIF distributes 80 per cent or more of its income within nine months from the end of its financial year, the link is established on the date of the dividend distribution. Alternatively, the link arises on the date the ownership interest is acquired if the QIF fails to distribute at least 80 per cent of its income within the same period. Additionally, a link will be created if the QIF fails to meet the diversity of ownership conditions during the tax period in which the failure occurs. For Reits, a similar rule applies. A link is established either on the date of the dividend distribution, if 80 per cent or more of income is distributed within nine months from the end of the financial year, or on the date of ownership acquisition if the Reit does not distribute at least 80 per cent of its income within the specified timeframe. Except in the above cases, a non-resident legal person investing in a QIF and/or Reit will no longer have a taxable presence in the UAE, the law stated. Dhruv Tanna, associate vice president at DIFC-based investment and wealth management firm PhillipCapital, said the decision provided 'much-needed clarity' to non-resident investors in QIFs and Reits regarding their potential tax exposure in the UAE under the corporate tax regime. 'By defining the circumstances in which a nexus is created, this decision distinguishes between passive, diversified investments and structures that either concentrate on UAE real estate or lack sufficient distribution or ownership diversity,' he said. 'Specifically, triggering events – such as failure to distribute 80 per cent of income within nine months or breaching diversity thresholds – serve as practical indicators of when a non-resident investor's involvement becomes sufficiently substantial to warrant tax treatment akin to a domestic presence.' Mr Tanna said this approach aligned with international principles of economic substance and demonstrates the UAE's efforts to maintain competitiveness while meeting global tax transparency standards. It also provides assurance that compliant investment vehicles, particularly those used for genuine portfolio diversification, will not be unintentionally caught in the corporate tax net, he explained. 'Furthermore, the decision reduces ambiguity around tax liability timelines by clearly anchoring nexus creation to either the dividend distribution date or the acquisition date, depending on compliance status,' Mr Tanna added. "This is particularly relevant for cross-border tax planning, fund structuring and Reit disclosures. 'Overall, Cabinet Decision No 35 reinforces the UAE's commitment to balancing fiscal responsibility with its reputation as an attractive, low-barrier investment hub – especially for institutional investors seeking certainty and regulatory sophistication.'