FTA clarifies corporate tax exemptions of investors in REITs as a qualified fund

Zawya

06-05-2025

Abu Dhabi, UAE: The Federal Tax Authority (FTA) has issued a new public clarification regarding Corporate Tax on the tax treatment of investors in a Real Estate Investment Trust (REIT) who are exempt from Corporate Tax as a Qualified Fund.
The general clarification can be found by clicking the link: Tax treatment of investors in a REIT that is exempt from corporate tax. The link takes you to a detailed explanation of the income of legal persons invested in REITs that are subject to corporation tax, the relevant tax period in which these investors will be subject to tax, and the compliance obligations of the REIT and investors. It also provides a comprehensive analysis of these topics and related matters, in addition to examples to increase the awareness of taxpayers concerned with the tax treatment of investors in qualifying REITs that are exempt from corporation tax.
Today's announcement also explained all matters related to the tax treatment of investors in qualified REITs who are exempt from corporate tax. These include the distribution of profits by a real estate fund to its investors, the expenses incurred by the investor in relation to his or her investment in the fund, the disposal of his or her investment in the fund, the adjustment of the fees accruing to the investment manager, the obligation of the fund to provide its investors with the necessary information to calculate their taxable income, and the appointment of a tax agent to act – on behalf of the non-resident investor in a real estate investment fund – to assist them in fulfilling their tax obligations.
According to the FTA's clarification, issued today, for tax periods beginning on or after the 1st of January 2025, resident and non-resident legal persons investing in a REIT that is exempt from corporate tax will be subject to corporate tax on a pro-rata basis on 80% of the immovable property income generated by the REIT.
Should the REIT distribute its immovable property income within nine (9) months of the end of its financial year, and the investor has not received a share of the dividends (as a result of the disposal of their entire ownership interest in the REIT), they will not be subject to corporate tax on the immovable property income realised from the fund. For the purposes of UAE Corporate Tax Law, the investor in a REIT is considered the legal owner of the ownership interest in the fund.
According to the clarification, income from immovable property is the net profit realised from real right in immovable property located in the UAE, and from its sale, disposal, transfer of rights, direct use, leasing and exploitation in any other form. All of which must be determined based on the financial statements of the REIT and specific categories of exempt persons, where such income is fully owned and fully controlled directly or indirectly by the REIT.
The Federal Tax Authority was established by Federal Decree-Law No. (13) of 2016 to help diversify the national economy and increase non-oil revenues in the UAE through the management and collection of federal taxes based on international best practices and standards, as well as to provide all means of support to enable taxpayers to comply with the tax laws and procedures. Since its inception in 2017, the FTA has been committed to cooperate with the competent authorities to establish a comprehensive and balanced system to make the UAE one of the first countries in the world to implement a fully electronic tax system that encourages voluntary compliance, with simple procedures based on the highest standards of transparency and accuracy – beginning from registration, to the submission of tax returns, to the payment of due taxes through the Authority's website: www.tax.gov.ae.