The introduction of UAE Corporate Tax represents a pivotal moment for businesses and investors, particularly Qualifying Investment Funds (QIFs) and Qualifying Limited Partnerships (QLPs). These entities enjoy a range of tax exemptions, making them key players in the UAE’s evolving investment landscape.
This guide covers the tax rules for QIFs and QLPs under the UAE Corporate Tax Law, with a focus on the Cabinet Decision No. 34 of 2025, effective from January 1, 2025.
Key Highlights:
- QIFs and QLPs are exempt from corporate tax on capital gains and dividends.
- QIFs must meet ownership diversity requirements to maintain tax-exempt status.
- QLPs benefit from tax-exempt profit distributions, ideal for private equity and real estate investors.
- Both QIFs and QLPs enjoy tax exemptions on foreign income, encouraging international investments.
- A grace period of 90 days is available for entities to rectify violations of tax conditions.
What Are QIFs and QLPs Under UAE Corporate Tax?
To understand the tax rules, it’s crucial to first define QIFs and QLPs.
Qualifying Investment Funds (QIFs)
A Qualifying Investment Fund (QIF) is an investment vehicle that pools capital from various investors and invests in diversified assets like real estate, equities, and bonds. These funds play a vital role in promoting economic growth and diversification in the UAE, offering investors a tax-efficient platform for managing their portfolios.
Qualifying Limited Partnerships (QLPs)
A Qualifying Limited Partnership (QLP) is a partnership structure used in sectors like private equity, real estate development, and infrastructure projects. These partnerships can apply for tax-exempt status under the UAE Corporate Tax Law, offering flexibility for large-scale investments and ventures.
Key Tax Rules for QIFs (Effective 2025)
Under UAE Corporate Tax Law, QIFs are granted tax-exempt status if they meet specific regulatory and operational conditions. The following are the key tax rules for QIFs:
1. Exemption from Corporate Tax
QIFs that comply with regulatory standards from bodies such as the Securities and Commodities Authority (SCA), Dubai Financial Services Authority (DFSA), and Abu Dhabi Global Market (ADGM) are exempt from corporate tax on income generated from their investments. However, these funds must meet ownership diversity requirements, ensuring no single investor has control over the fund.
2. Exemption on Capital Gains and Dividends
One of the most attractive aspects of QIFs is the exemption on capital gains and dividend income. This means QIFs do not pay tax on profits made from selling qualified investments, including real estate or securities, and can distribute dividends to investors without tax liability.
3. Ownership Diversity Requirement
To maintain their tax-exempt status, QIFs must ensure ownership diversity. This means no single investor should control more than a specified percentage of the fund. If a QIF fails to meet these conditions, it risks losing its tax-exempt status. However, a 90-day grace period is provided for correcting such violations.
4. Foreign Income Exemption
QIFs that earn foreign income are generally exempt from UAE Corporate Tax. This makes the UAE an attractive jurisdiction for international investment funds looking to operate in a tax-efficient environment.
Key Tax Rules for QLPs (Effective 2025)
Like QIFs, QLPs are also eligible for tax exemptions under the UAE Corporate Tax Law. Below are the key tax rules for QLPs:
1. Tax Exemption Status
QLPs that meet specific criteria can apply for tax-exempt status with the Federal Tax Authority (FTA). This exemption applies to income generated from their investment activities, such as real estate, private equity, and infrastructure projects.
2. Profit Distribution Exemption
Investors in QLPs do not need to include the profits received from tax-exempt QLPs in their taxable income. This provides a tax-efficient structure for investors looking to maximize their returns without incurring additional tax burdens.
3. Applicability to Private Equity and Real Estate
The QLP structure is beneficial for private equity and real estate investors. The tax exemptions on profits and capital gains provide a tax-efficient solution for businesses involved in large-scale investments and development projects.
Key Compliance and Updates Under UAE Corporate Tax
The UAE Corporate Tax Law, particularly under Cabinet Decision No. 34 of 2025, introduces several compliance updates for QIFs and QLPs to ensure proper operation and transparency. Here are some essential compliance updates:
1. Information Sharing Requirements
QIFs and QLPs are required to provide detailed investor information to enable accurate calculation of taxable income. This promotes transparency and ensures that investors remain compliant with UAE tax regulations.
2. Grace Period for Violations
If a QIF or QLP fails to meet the required conditions, it risks losing its tax-exempt status. However, the UAE offers a grace period of up to 90 days for entities to rectify any violations, ensuring they maintain their tax benefits.
3. Non-Resident Nexus Rules
The UAE has introduced updated rules for non-resident juridical persons (foreign entities) to determine if they have a permanent establishment (PE) in the UAE. These rules help clarify the tax obligations of foreign businesses operating in the UAE, ensuring compliance with international tax standards.
4. Natural Persons’ Investments
Investments by natural persons (individual investors) in QIFs and QLPs are typically outside the scope of UAE Corporate Tax, making these investment structures highly attractive for individual investors.
Benefits of UAE Corporate Tax Rules for QIFs and QLPs
The favorable tax rules for QIFs and QLPs provide numerous benefits for both investors and businesses, enhancing the UAE’s competitiveness as a global investment hub.
1. Attraction of Global Investment
The tax-exempt status for QIFs and QLPs makes the UAE an ideal destination for international investments. With exemptions on capital gains and dividend income, these entities offer a tax-efficient platform for investors.
2. Encouraging Large-Scale Infrastructure Projects
The tax exemptions for QLPs involved in infrastructure and real estate projects support large-scale developments, contributing to the UAE’s economic diversification and growth.
3. Simplified Compliance and Transparency
The grace period and clear compliance guidelines make it easier for QIFs and QLPs to maintain their tax-exempt status, ensuring a smooth and business-friendly environment in the UAE.
FAQs
What are the conditions for corporate tax group in UAE?
A corporate tax group in the UAE must have at least 75% ownership and control between group members, allowing them to file a consolidated tax return and offset losses.
What is Article 37 of the UAE corporate tax law?
Article 37 outlines the capital gains tax exemption for QIFs and other qualifying entities involved in the sale of certain assets, including real estate and shares.
What is Article 27 of the corporate tax law in the UAE?
Article 27 defines the deductions businesses can claim, including allowable business expenses and carried forward losses, helping reduce taxable profits.
What is the corporate tax rule in the UAE?
The corporate tax rate in the UAE is set at 9% on profits exceeding 375,000 AED, with exemptions for QIFs and QLPs, along with other specific entities like REITs.
Can QIFs and QLPs avoid UAE corporate tax?
Yes, QIFs and QLPs can be tax-exempt if they meet criteria like regulatory compliance and ownership diversity, providing tax benefits on income, dividends, and capital gains.
How can QIFs maintain their tax-exempt status?
QIFs must maintain diversity of ownership and comply with regulations from authorities like SCA, DFSA, or ADGM. If conditions are breached, they have up to 90 days to rectify the issues.
Conclusion
The UAE Corporate Tax Law, especially under Cabinet Decision No. 34 of 2025, provides substantial tax exemptions for QIFs and QLPs, making them key structures for investment in the UAE. These entities enjoy exemptions on capital gains, dividends, and income, offering significant tax advantages for both businesses and investors.
For investors and businesses looking to establish or invest in QIFs or QLPs, understanding the tax rules and maintaining compliance is essential to maximize the benefits of the UAE’s tax-exempt framework. The UAE continues to enhance its tax regime, ensuring that QIFs and QLPs remain at the forefront of the country’s investment strategy and economic growth.
On top of this,Dos Hermanos in UAE professional accounting and bookkeeping services prepare investor information notes, sample side letter wording, and QIF or QLP exemption packs that fit FTA expectations. Thus, approvals and ongoing compliance stay on schedule.
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