UAE Fund Tax Regime

Under the UAE’s Corporate Tax Law, investment funds that meet certain conditions may be treated as Qualifying Investment Funds (QIFs) and benefit from an exemption from Corporate Tax (CIT). The fund itself is treated as an Exempt Person, while at the investor level, natural persons may fall within the personal investment income exclusion, UAE corporate investors may avail of the participation exemption, and distributions to foreign investors are generally subject to a 0% withholding tax rate.

For fund managers and investors, it is worth understanding both the conditions that must be in place and the situations in which investors may nonetheless be taxable. In a separate article, we will cover REITs.

Why this Matters Now: 

The 2025 framework is now taking hold. Cabinet Decision No. 34 of 2025 applies to financial years beginning on or after 1 January 2025, the first annual declarations are falling due, and the FTA’s review is expected to move from a relatively light-touch assessment at the application stage towards closer ongoing scrutiny as its audit programme matures. Funds and investors that have not recently tested their position against the current conditions are well advised to do so before an FTA query rather than after.

Conditions to qualify for CIT exemption in the UAE

Conditions to qualify for CIT exemption in the UAE

To be treated as a QIF, a fund must satisfy the conditions set out in the UAE’s CIT legislation and Cabinet Decision No. 34 of 2025 on Qualifying Investment Funds and Qualifying Limited Partnerships, issued under the UAE Corporate Tax Law. As such, the requirements are:

• Regulatory oversight condition: The investment fund or the investment fund’s manager is subject to the regulatory oversight of a competent authority in the State, or a foreign competent authority recognised for the purposes of this Article. Importantly, the condition Based on our experience to date, the FTA’s review at the point of application has generally been limited in scope. It is reasonable to expect, however, that the FTA will subject QIF applications and ongoing compliance to more detailed scrutiny as its audit programme matures.

• Trading and marketing condition: Interests in the investment fund are traded on a Recognised Stock Exchange (“RSE”), being any stock exchange established in the State that is licensed and regulated by the relevant competent authority, or any stock exchange established outside the State of equal standing, or are marketed and made available sufficiently widely to investors. In the UAE, this would include the Abu Dhabi Securities Exchange (ADX), the Dubai Financial Market (DFM), and NASDAQ Dubai, as well as foreign exchanges of comparable standing such as the London Stock Exchange, New York Stock Exchange, or other major regulated markets. Under the 2025 framework, the marketing condition and the diversity of ownership condition, once assessed together, now operate separately, the first at the fund level and the second at the investor level. Trading on a Recognised Stock Exchange satisfies the condition. Otherwise, it should generally be demonstrable through the fund’s prospectus that interests are made available to a category of investors rather than confined to a single investor or a closed, pre-identified group. An open class defined by objective criteria should suffice even if few investors ultimately subscribe, for example, any professional client under the applicable DFSA, FSRA, or CMA rules, any investor meeting a stated minimum commitment, or any regulated pension fund or insurance company. An offer extended only to a fixed list of named investors is more exposed, and a category drawn so narrowly that it captures only one or a few connected investors may not satisfy.

• No tax avoidance condition: The main or principal purpose of the investment fund is not to avoid CIT. The Federal Tax Authority (“FTA”) Corporate Tax Guide on Investment Funds and Investment Managers clarifies that this condition refers specifically to UAE CIT and does not extend to foreign taxes. The mere fact that a fund has been established with the expectation that it will qualify as an Exempt Person does not, of itself, mean that avoidance of CIT is its main purpose. However, where the CIT benefit is the only commercial benefit of a particular structure, this may indicate that the condition is not met. The determination is made on a case-by-case basis and allows the FTA to audit QIF applications and challenge the exemption where appropriate.

• Business condition: The principal Business or Business Activities conducted by the investment fund are Investment Business, and any other Business or Business Activities conducted by the investment fund are ancillary or incidental to the Investment Business, up to 5% of the total revenue of the investment fund.

• Control condition: The investors must not have control over the day-to-day management of the investment fund.

• Information condition: To provide its investors with all information, documents and data necessary for the purposes of calculating their taxable income. In other words, the fund administrators have a crucial role to play, as the quality of the investor calculations is a precondition for the exemption.

Complexities arise with umbrella funds, feeder funds, and parallel funds. Entities wholly owned and controlled by QIFs may also apply for exempt status.Based on our experience to date, the FTA’s review at the point of application has generally been limited in scope. It is reasonable to expect, however, that the FTA will subject QIF applications and ongoing compliance to more detailed scrutiny as its audit programme matures.

Taxation of investors

We cover below the most common income streams from units held in a traditional fund.

Proceeds or dividends

Where the QIF conditions are met in principle, the taxable income earned by an investor in a QIF can be exempt. Certain investors in any case have a double protection. Natural persons may fall within the personal investment income exclusion, UAE corporate investors may potentially avail of the participation exemption or the Qualifying Free Zone Person (“QFZP”) regime for free zone entities, and distributions to foreign investors are generally subject to a 0% withholding tax rate.

Solely meeting the QIF conditions does not, however, place every investor entirely outside the UAE CIT net. A juridical investor may still be taxed in a number of situations.

The first is where the diversity of ownership condition is breached. Where a fund has fewer than ten investors, a single investor together with its related parties should not hold 30% or more of the ownership interests. Where a fund has ten or more investors, that threshold rises to 50%. The scope of this condition extends beyond bare ownership to factors such as voting rights, board composition, and profit entitlements. Where the condition is not met, the affected investor is brought within the CIT net on the income derived from the fund. Grace periods soften this outcome: the diversity thresholds do not apply during the fund’s first two financial years, provided the fund can demonstrate its intention not to exceed the thresholds from the third financial year, nor where a breach lasts fewer than 90 days for reasons outside the control of the fund or the investor, nor on liquidation.

The second is where the fund holds UAE real estate that exceeds 10% of its total assets, in which case 80% of the immovable property income is brought into the hands of the juridical investor on a prorated basis. Where the fund distributes 80% or more of that income within nine months of the financial year end, an investor that disposed of its entire interest before receiving the distribution is relieved of this adjustment.

The third is where the investor holds an interest in a Real Estate Investment Trust (REIT). In this case, a juridical investor’s share of the REIT’s income is brought into the investor’s taxable income on a prorated basis, regardless of whether the diversity of ownership condition is met. The rationale is that REITs, by their nature, derive substantially all of their income from UAE immovable property, and the regime therefore treats REIT investors in the same manner as investors in a fund that exceeds the 10% real estate threshold. As with the real estate adjustment above, the 80% distribution rule and associated relief may apply, so that where the REIT distributes at least 80% of the relevant income within nine months of the financial year end, the tax impact on the investor may be mitigated.

Capital gains

Where an investor disposes of its ownership interest in a QIF and the participation exemption under Article 23 of the Corporate Tax Law does not apply, the investor’s taxable income in the period of disposal is adjusted to exclude any undistributed profit that was already included in its in its taxable income under the diversity of ownership or real estate adjustments described above. This adjustment is capped at the taxable gain arising from the disposal, so that it cannot create or increase a loss. The effect is to prevent the same income from being taxed twice — once when attributed to the investor as undistributed fund income, and again on exit as part of the capital gain.

As a general matter, natural persons may fall within the personal investment income exclusion, UAE corporate investors may potentially avail of the participation exemption or the QFZP regime for free zone entities, and capital gains earned by foreign investors are generally subject to a 0% withholding tax rate.

Limited partnerships as a parallel route

The framework also provides for the tax regime applicable to a Qualifying Limited Partnership (QLP). This framework is for funds formally structured as a limited partnership, comprising a general partner and one or more limited partners, where the partnership itself has separate legal personality. The conditions are broadly the same between the QIF and QLP.

Its principal use is for fund partnerships that have their own legal personality and that would otherwise be treated as taxable persons. A DIFC limited partnership, for instance, has separate legal personality by default, and an ADGM limited partnership may acquire it by election. Absent the QLP regime, such a vehicle would itself be subject to CIT at the fund level, unlike a classic transparent partnership such as a Cayman or English limited partnership, where only the partners are taxed. A QLP applies to the FTA to be exempt from CIT, and its income is then attributed to and taxed in the hands of its investors on an accrual’s basis, with distributions excluded so that the same income is not taxed twice. In effect, the regime gives these partnerships fiscally transparent treatment, placing the QLP alongside the QIF as a route to a single layer of tax.

To qualify, the partnership’s principal activity must be investment business, with other activities remaining ancillary or incidental, and its main purpose must not be the avoidance of CIT. A further qualifying condition is that the QLP must not derive any income from UAE immovable property. This is an outright prohibition, and it marks a structural difference from the QIF regime, where a fund may hold UAE real estate, but the consequence is an adjustment at the investor level rather than disqualification of the fund. For a QLP, any UAE real estate income would take the partnership outside the regime altogether. The QLP regime also does not impose the diversity of ownership condition that applies to investors in a QIF. A foreign investor in a QLP should therefore not, by reason of its investment alone, create a taxable nexus in the UAE, provided the partnership earns no UAE immovable property income. For internationally held fund partnerships, that certainty is among the more useful features of the regime.

Limited partnerships which do not hold legal personality can opt to be taxpayers and can potentially also claim exempt status.

Reporting and compliance

The FTA has set out the related compliance timelines in its Decision No. 8 of 2025. Once Exempt Person status is granted, the fund must file an annual declaration within ten months of the end of its financial year confirming that the QIF conditions continue to be satisfied.
There is an important role for the fund administrators. A QIF that does not meet the diversity of ownership condition must give its investors the information needed to calculate their adjusted taxable income within six months of its financial year end.
A QIF that holds UAE real estate above the 10% threshold, and a REIT, must tell investors whether 80% or more of the relevant income has been distributed, and provide the supporting information, within nine months. For foreign investors, this may mean they have a UAE nexus and an associated registration, filing and payment obligation. Separately, the fund must maintain adequate records and documentation for a period of seven years following the end of the tax period to which they relate, to enable the FTA to readily ascertain its exempt status.

Watch points

The expanded nexus under Cabinet Decision No. 35 of 2025 can draw non-resident juridical investors into the UAE CIT net where the diversity of ownership condition is breached, and no longer only in relation to UAE real estate income. A foreign investor that assumed it was outside of UAE CIT under the earlier rules may now carry a registration and filing obligation.The quality of fund-administration data is a precondition for the exemption, not a mere back-office detail. Where investors cannot be given accurate figures to calculate their adjusted taxable income within the prescribed windows, both the fund’s exempt status and the investors’ own compliance are exposed.

A fund whose UAE real estate accounts for close to 10% of total assets can push its investors into the 80% immovable property income adjustment with a modest movement in asset values. The ratio is worth monitoring throughout the year, not only at the financial year end.

The pre-2025 position

Under the earlier framework applicable before 1 January 2025, a qualifying fund applied to the Federal Tax Authority for exempt status, but the conditions were drawn differently, and a breach could affect the status of the fund rather than only the relevant income in the hands of certain investors. We have covered the previous position in past coverage you can find here.

What this means in practice

QIF status can be a significant advantage when structuring funds in the UAE, but it is conditional, and the conditions require careful assessment. A structure that falls short does not simply lose the exemption. It inserts an additional layer of tax that erodes investor returns and undermines the very efficiency the fund was designed to deliver.

We advise fund managers and investors across the GCC on fund structuring and on the QIF, QLP, and free zone regimes, together with the related CIT and transfer pricing implications. If you are launching or redomiciling a fund, onboarding foreign limited partners, holding UAE real estate near the 10% threshold, or approaching your first annual declaration, this is the moment to confirm your position rather than correct it later. We would welcome the opportunity to discuss how the regime applies to your structureRegulatory OversightRegulatory Oversight