The UAE Ministry of Finance has issued Cabinet Decisions No. 34 and 35 of 2025, introducing changes that may affect investment funds, real estate holding structures, and foreign investors operating in or through the UAE. These developments could result in corporate tax liabilities, even where funds are based offshore or were previously exempt.
In this legal update, corporate lawyer Vida Grace Serrano outlines the updated conditions for Qualifying Investment Funds (QIFs), REITs, and Limited Partnerships, and explains the circumstances under which a non-resident investor may be deemed to have a taxable presence in the UAE. She also sets out the key requirements, grace periods, and practical considerations for fund managers and sponsors.
Introduction:
On 15 April 2025, the UAE Ministry of Finance announced Cabinet Decisions No. 34 and 35 of 2025, marking a significant development in the country’s corporate tax regime. These decisions introduce new conditions for tax exemptions applicable to Qualifying Investment Funds (QIFs), REITs, and limited partnerships—particularly those with UAE real estate exposure or foreign investors.
This update may trigger corporate tax obligations, even for previously exempt or offshore fund structures. The article outlines the key changes and explains what fund managers, investors, and sponsors should review now.
Who should be concerned?
- Fund managers with vehicles holding UAE real estate
- Foreign investors in UAE funds, in particular Qualifying Investment Funds (QIF) or Real Estate Investment Trusts (REIT)
- Newly formed funds relying on grace periods
- Advisors or sponsors assuming earlier conditions for exemption still apply
Brief Overview – Cabinet Decision No. (34) of 2025 on Qualifying Investment Funds (QIF) and Qualifying Limited Partnerships
Cabinet Decision 34 of 2025 revamps the tax framework for investment funds in the UAE. It provides a corporate tax exemption for QIF, introduces investor-level tax adjustments for certain situations and allows certain limited partnerships to be treated as tax-transparent. In summary, if a fund qualifies as a QIF and maintains the required conditions, neither the fund nor its investors will be subject to UAE Corporate Tax on the fund’s income. Key provisions are outlined below.
Conditions to Qualify as a QIF for Corporate Tax Exemption
- The fund or its investment manager is subject to regulatory oversight by a competent authority in the UAE or a recognized foreign regulatory authority.
- The fund is either: Listed on a recognized stock exchange, or widely marketed and available to investors.
- The fund’s main purpose is not to avoid corporate tax.
- The fund meets any future conditions introduced by new Cabinet Decisions (a catch-all for potential additional requirements)
New/Additional Conditions: In addition to the above, the new Decision imposes a few extra requirements for QIF status
- Main Activity: The fund’s primary business must be investment-related. Non-investment activities must be minor (no more than 5% of total revenue).
- Investor Control: Investors cannot have day-to-day control over fund operations. The fund must be run by its manager(s) without direct daily input from the investors.
- Transparency: Investors must be given all necessary information to calculate their taxable income.
Grace Period Maintained for Ownership Diversity Condition
Under the new Cabinet Decisions, violations of the Diversity of Ownership Condition or the Immovable Property Percentage do not affect the QIF’s exempt status. Instead, only the relevant investors are required to make a taxable income adjustment (with the exception of a REIT) to include their prorated share of the QIF’s net profit in their taxable income.
The grace period granted to meet the Diversity of Ownership Condition is maintained. Some of the pointers to note are as follows:
- As under the previous decision, new funds have 2 years to meet the requirement for diversity of ownership, provided the fund demonstrates an intention to comply by the start of the third year.
- This grace period gives funds time to address any temporary breaches of the Diversity of Ownership Condition, as long as those breaches do not exceed a total of 90 days in a calendar year or occur during the fund’s liquidation or termination process.
The other case when a taxable income adjustment is required to be made is when the QIF (with the exception of a REIT) breaches the real estate asset threshold of above 10% in its financial year. In this case the taxable income of a juridical investor for the relevant tax period shall be adjusted to include 80% of the prorated real estate income. In comparison, it should be noted that under the previous Cabinet Decision, 100% of such income must be included.
Real Estate Investment Trusts (REIT): Investors will be subject to tax on 80% of the real estate income derived through the REIT if conditions are not met.
Foreign Juridical Investors in QIF or REIT (that meet the relevant conditions): Registration is triggered only when dividends are distributed, provided the QIF or REIT distribute 80% or more of their income within 9 months of the financial year end.
Cabinet Decision No. (35) of 2025 – Tax Nexus for Foreign Investors: This decision outlines when a non-resident juridical investor in QIF or REIT is deemed to have a taxable presence in the UAE.
80% of the real estate income derived through QIF becomes taxable in the UAE when there is nexus. A non-resident juridical investor is considered to have a taxable presence in the UAE, if
1- The fund breaches the 10% real estate asset threshold i.e. derives more than 10% of its income from real estate assets, and if:
- the QIF distributes 80 percent or more of its income within 9 months from its financial year-end, where nexus is established on the date of the dividend distribution; and
- the QIF fails to distribute at least 80% of its income within 9 months from its financial year-end, where nexus is established on the date the ownership interest is acquired.
2- The fund fails the ownership diversification test in the tax period.
80% of the real estate income a foreign investor earned through REIT becomes taxable when there is nexus. A non-resident juridical investor is considered to have a taxable presence in the UAE, if:
1- The REIT distributes 80% or more of its income within 9 months from its financial year-end, where the nexus is established on the date of the dividend distribution; and
2- The REIT fails to distribute at least 80% of its income within 9 months from its financial year-end, where nexus is established on the date the ownership interest is acquired.
Outside of these scenarios, non-resident juridical investors investing in QIF and/or REIT are not considered to have a taxable connection (nexus) with the UAE.
What You Should Do Now
Take a close look at your current fund structures, investor mix, and real estate exposure. These new UAE tax rules could trigger corporate tax liabilities, even for offshore or historically exempt funds, if certain thresholds aren’t met.
Need Support?
Alsuwaidi & Company’s Corporate practice is already working with fund managers, sponsors, and foreign investors to assess risk and adapt their structures under Cabinet Decisions No. 34 and 35 of 2025. Please get in touch with us should you wish to know what these changes mean for your setup, and how to stay on the right side of compliance.
Author: Vida Grace Serrano
Vida is a corporate lawyer at Alsuwaidi & Company, specialising in corporate and commercial law, employment, and real estate. She advises clients across sectors including oil and gas, real estate, financial services, and family-owned businesses.
With legal training and experience across the United States, the Middle East, and Asia, Vida provides commercially focused advice tailored to both local and international clients. She holds an LLM from the Benjamin N. Cardozo School of Law in New York, where she was awarded the Dean’s Merit Scholarship, and an LLB from San Beda College of Law in Manila, graduating in the top 5% of her class. She is fluent in English and Tagalog.
To speak to Vida directly, contact her at vida@alsuwaidi.ae
