UAE Corporate Tax: Investment and Real Estate Funds in UAE exempt?
Every profession or business has its own different language which diminishes any possible misunderstanding. Corporate Tax represents such a group.
A Corporate Tax is an indirect tax that is levied on the income and capital of corporations and legal business entities. It is also called with names like corporation tax or company tax.
The UAE Central Tax Authority has recently released another detailed tax guide. This tax guide doesn’t legally bind any individual or entity, its aim is to provide individuals the understanding and navigate them to evolve with the legal framework.
Those tax professionals, investors or tax persons who want to optimise the return on their savings, about few things they need to be aware of. If some investment vehicles are structured correctly, they can be very tax-efficient for the people who will invest in them.
In the West side of the world, governments are increasing the tax rates and to increase revenue and provide the needed support to the ageing population, they are putting effort into closing loopholes in the tax system.
If someone is looking for proof of the Laffer curve, which shows the relationship between tax rates and revenue, he doesn’t need to look elsewhere. Look out for this example in your near environment: if taxes increase in a location or area, the tax revenue naturally starts to decrease because a significant amount of the population relocates to an environment that is more tax-friendly for them.
Likewise, the UAE is currently becoming the hub of attraction and quite an excellent destination for people who are looking for a competitive tax environment. On a global scale, the 9% corporate tax rate is highly competitive and the sunny climate of the country is like a cherry on top.
Let’s start with a group of investors, who with a specific objective in mind, want to contribute their funds to an investment fund. And, this investment involves some restrictions, like what types of investments can be made and their pre-determined loss levels and targeted parameters.
In this case, two main structures came into consideration – Qualifying investment funds (QIF) and real estate investment trusts (REITs). These are entities that may qualify for exemption from corporate tax if they continue to follow a well-defined legal framework.
This framework covers supervision by either the relevant UAE regulatory authority or an internationally recognized alternative that the country considers worth performing the regulatory job.
If is found that above mentioned investment vehicle is only used for avoidance of Taxes then their tax exemption may be revoked.
UAE regulatory authorities are totally committed to enhancing the investment fund and real estate sector of the economy for better growth. UAE’s govt aims to build a fair and equal environment that ensures the tax treatment of QIF and Reits is in line with that of individual direct investments in the underlying assets.
Reits require additional compliance obligations, given the significant role of real estate in the economy. Held assets must have a minimum worth of Dh100 million ($27.2 million).
Assets can be owned in a special purpose vehicle (SPV) which allows easy adjustments to the composition of funds. Distribution of Ownership should be given to various parties and the rules not only be levied to the company but also to individuals.
While, in the case of Reit, it has this investment flexibility, where investment can be done into various asset classes and for real estate, it is mandatory to compose a minimum of 70% of the total fund value.
It is very important to be mindful at times when looking into guidelines and rules as it can be confusing from the perspective of income generation from the underlying asset value with the assets themselves.
In an environment that changes on a daily basis, Reit walks at the risk of losing its exemption status anytime soon as its component’s relative value fluctuates so much.
