UAE introduces new tax system to boost economic growth

The UAE Ministry of Finance has introduced new regulations designed to boost economic growth by attracting more investments, particularly through Qualifying Investment Funds (QIFs) and Qualifying Limited Partnerships. These changes aim to create a more favorable tax and regulatory system for investors in the UAE.

In essence, the new regime provides freedom from UAE Corporate Tax for income earned in relation to a QIF, provided that a set of criteria is met- including 10% in real estate assets, and requirements for ownership diversity. To enhance flexibility for QIFs, the regulation allows for a grace period after an initial period of 2 years for addressing breaches of ownership diversity, with a limit as to how long the breaches can last in any given year.

The Ministry clarified that if ownership diversity violations occur, they will affect only the breaching investors, provided other conditions are met. Additionally, if a QIF exceeds the real estate asset threshold, 80% of the income from real estate will be taxed, in line with how Real Estate Investment Trusts (REITs) are treated.

Foreign investors will also benefit from simplified administrative processes. Foreign investors in REITs and QIFs, who meet certain conditions and distribute 80% or more of their income within nine months of the financial year-end, will only need to register for Corporate Tax when dividends are distributed.

This regulatory update is a strategic move by the UAE to reinforce its position as a top global investment hub, offering competitive tax advantages and a streamlined regulatory system for attracting international capital.

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