UAE Defines Tax Nexus for Non-Resident Investors in QIFs and REITs

In May 2025, the United Arab Emirates issued Cabinet Decision No. 35 of 2025, which for the first time explicitly defines when non-resident juridical investors in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs) establish a taxable nexus in the UAE. This clarification is critical for international investors and fund managers, as it determines when income derived from these vehicles becomes subject to UAE corporate tax.

Since the introduction of the UAE’s 9% corporate tax regime (applicable to profits exceeding AED 375,000) in June 2023, many multinationals and private equity firms structured their investments through QIFs and REITs to benefit from the country’s favorable tax environment. However, the rules governing exactly when a foreign investor becomes taxable were ambiguous, creating compliance uncertainty. Cabinet Decision 35 remedies this by setting clear nexus-triggering events.

Key Nexus-Triggering Events

Under the new decision, a non-resident juridical person will be considered to have a UAE tax nexus if it meets any of the following conditions through its QIF or REIT investment:

1. Effective Management in the UAE:

   • Key management and commercial decisions are made within UAE territory (e.g., board meetings held in Dubai or Abu Dhabi).

2. Substantial Economic Activity:

   • The fund’s assets are predominantly UAE-based (over 50% of fund assets held in UAE real estate or securities).

3. Onshore Fund Administration:

   • The fund’s administration (e.g., fund accounting, investor record-keeping) is conducted by UAE-licensed service providers.

4. Local Trustee or Custodian Engagement:

   • Appointment of a UAE-licensed trustee or custodian with substantive duties and powers under the fund structure.

These criteria mirror OECD BEPS guidelines on tax residency and permanent establishment, ensuring international consistency.

Implications for Investors

• Tax Liability: Non-resident investors who trigger nexus must report and pay UAE corporate tax on their share of fund profits. This liability arises even if distributions are reinvested.

• Fund Structuring: Fund sponsors may need to revisit their structures—possibly repatriating management to onshore jurisdictions or relocating administrative functions offshore to avoid unintended nexus.

• Withholding Tax Relief: Although UAE does not impose withholding tax on outbound dividends, foreign investors should record nexus events properly to benefit from double-tax treaties and avoid disputes in their home jurisdictions.

Action Steps for Fund Managers and Investors

1. Conduct a Nexus Assessment: Compare current fund operations against the four nexus criteria. Engage tax advisors to map decision-making locations, asset composition, and service provider contracts.

2. Revise Fund Documents: Amend offering memoranda, trust deeds, and service agreements to reflect any operational changes—such as shifting board meetings or administrative services—to align with desired nexus outcomes.

3. Update Tax Registrations: If nexus is triggered, register the non-resident investor with the Federal Tax Authority (FTA) for corporate tax and ensure timely filing of tax returns.

4. Monitor Regulatory Updates:The FTA has indicated that further implementation guidelines and practical examples will follow later in 2025. Stay informed through official FTA circulars and professional advisories.

   
   

Strategic Considerations

• Cost-Benefit Analysis: Fund sponsors should weigh the administrative and compliance costs of avoiding nexus against potential corporate tax liabilities. In some cases, the benefits of onshore administration—such as enhanced investor confidence—may outweigh tax costs.

• Treaty Access: Properly registered nexus may enable investors to leverage UAE’s extensive double-taxation treaty network, reducing effective tax rates in their home countries.

• Governance Best Practices: Document board resolutions, meeting minutes, and service provider engagements meticulously to substantiate the locus of control and management in case of an FTA audit.

Cabinet Decision No. 35 of 2025 provides much-needed clarity on when non-resident investors in QIFs and REITs establish a UAE tax nexus. By understanding and operationalizing these rules, fund managers and investors can optimize their structures, remain compliant, and continue to leverage the UAE’s attractive tax regime. Proactive assessment and documentation will be key to navigating this new landscape effectively.