UAE Implements New Government Decision to Enhance Investment Capital and Collaborative Endeavors Through Tax Alterations
The United Arab Emirates (UAE) has made significant strides in attracting international funds and investors with the issuance of Cabinet Decision No. 34 of 2025. This decision, effective from January 1, 2025, updates the tax treatment of Qualifying Investment Funds (QIFs) and Qualifying Limited Partnerships (QLPs) under the UAE Corporate Tax Law.
The revised framework brings about several key impacts and updates. For instance, the decision clarifies and modifies eligibility criteria for QIFs, emphasizing that these funds must focus on investment activities and cannot allow investors to manage day-to-day fund operations. The conditions regarding the types of business activities these funds can conduct have also been refined.
Real Estate Investment Trusts (REITs) under the QIF regime have also seen updates to align with revised standards, ensuring closer regulation of their investment scope and tax treatment. QLPs, too, have new rules specifying that they must focus on investments rather than business operations. Notably, they cannot derive income from the use or sale of UAE real estate as part of their core activities. However, a novel provision allows juridical persons wholly owned by a QLP and conducting similar activities to apply for corporate tax exemption.
The decision provides new instructions on calculating taxable income for investors in QIFs and QLPs, covering reporting obligations and pertinent tax adjustments. This aims to ensure transparency and compliance by investors.
Both QIFs and QLPs meeting the new conditions are exempt from UAE corporate tax on qualifying income, enhancing the attractiveness of investment funds and partnerships structured under this regime.
Foreign investors stand to benefit from this revised framework. The clear and streamlined tax treatment improves certainty and compliance for foreign investors in UAE QIFs and QLPs. Investors benefit from tax exemptions on qualifying incomes and clearer reporting requirements, reducing the tax burden and administrative complexities.
The rules encourage genuine investment-focused structures favored by many foreign investors. The allowance for wholly owned juridical persons by QLPs to also apply for exemption facilitates more flexible investment structures under UAE law.
In summary, Cabinet Decision No. 34 of 2025 enhances the tax benefits and regulatory clarity for QIFs and QLPs in the UAE, making the country more attractive to international funds and investors. The strategic update combines regulatory clarity with tax efficiency, reinforcing the UAE's position as a forward-thinking, investor-friendly jurisdiction. This update is aimed at driving economic growth in the UAE.
Investors looking to set up a Qualifying Investment Fund (QIF) or a Qualifying Limited Partnership (QLP) in the UAE, as per the updated regulations, must ensure that their focus is primarily on investment activities, and refrain from allowing investors to manage day-to-day fund operations. Both QIFs and QLPs, when meeting the new conditions, are exempt from UAE corporate tax on qualifying income, making the country more attractive to international investment funds and investors.
