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• Immovable property percentage (IPP): Value of immovable property located in the UAE, held by the QIF, as a percentage of the total value of assets of the QIF.
• Immovable property income (IP income): Net realized profit derived from right in rem, sale, disposal, assignment of rights therein, direct use, letting, including subletting and any other form of exploitation of Immovable Property. The income attributable to the investment manager will be excluded.

As clarified by CTP005, in determining the IP income:

� Realized income or gains shall be reduced by expenses directly linked to earning such income, and a proportional part of the general expenses of the REIT. Any unrealized income or expense such as fair value adjustments or impairments, shall be excluded until realized and recorded in the financial statements.

� IP income only encapsulates net realized profit and does not include a net realized loss position.

� Tax depreciation should be deducted (pursuant to a decision yet to be issued).

• Net profit: Net profit recorded in the financial statements of the QIF after excluding the income attributable to the investment manager.
• Qualifying Limited Partnership (QLP): a limited partnership that is a juridical person established pursuant to the relevant legislation in force in the UAE for the sole purpose of collective investment, under a legal framework that explicitly allows the establishment of such partnerships on or before 1 June 2023, or any other legal framework prescribed by the Minister.

Under the previous regime, QIFs were exempt from CT upon meeting required conditions. As one of the required conditions for a QIF exemption, CD 81 required that no single investor, together with its related parties should own more than the following thresholds:

• 30% or more ownership interest in the QIF (in the case of up to 10 investors) 
• 50% or more ownership interest in the QIF (in the case of more than 10 investors)

hereinafter referred to as the ‘diversity of ownership condition�.

Non-compliance with the ‘diversity of ownership� condition no longer jeopardizes the QIF status of an Investment Fund. However, in such a case, the income becomes taxable in the hands of juridical investors, subject to specified exceptions. Notably, the scope of ‘diversity of ownership� has been expanded to include parameters such as voting rights, board composition, profit entitlements, and business control.

In addition to the basic conditions provided under Article 10 of the UAE CT Law, REITs were required to meet three additional conditions under CD 81:

• Condition 1 - Real estate asset value (excluding land) must exceed AED 100 million
• Condition 2A - At least 20% of share capital floated on a recognized stock exchange
• Condition 2B â€� At least 20% of share capital directly owned by two or more institutional investors (at least two unrelated)
• Condition 3 - Average real estate asset percentage â‰�70% during the financial year

Under CD 34, the following amendments have been made:

• Condition 1 â€� The term “immovable propertyâ€� has replaced “real estate assetâ€�. A definition of ‘immovable propertyâ€� has been provided, which is aligned with the definition of immovable property earlier provided in CD No. 56 of 2023 (old CD for Nexus rules). Additionally, assets held through REIT-owned SPVs are explicitly included in the new Decision.
• Condition 2A â€� A REIT and its related parties or connected persons must not subscribe to the shares floated on the recognized stock exchange. For REITs whose shares are listed for the first time between 1 May 2025 and 31 May 2025, at least 10% of shares must be floated on a recognized stock exchange1.
• Condition 2B â€� Federal and Local Governments have been removed from the list of institutional investors.
• Condition 3 â€� Must be based on average value of rental income-generating immovable property over the financial year. Immovable property held solely for the purposes of capital appreciation should be excluded for the purposes of the calculation.

In the case of both QIFs and REITs, CD 34 provides an additional condition: the QIF and REIT need to provide their investors with all information and documents necessary for calculating their taxable income. CTP005 provides the list of information required in the case of REIT, namely:

• Amount of IP income 
• Whether the REIT is a distributing fund for such financial year 
• Tax depreciation deduction for each investment property
• Any disposals of investment property for which a tax depreciation deduction was previously claimed

CD 81 provided that the taxable income of an investor in the QIF that is a juridical person will include a prorated share of the QIF’s net profit as reflected in its financial statements. QIFs were required to classify their net distributable income into the following categories:

• Net exempt income
• Net income from immovable property
• Net interest income
• Net other income

Subsequently, the above income (except net exempt income) was taxable in the hands of the investors, depending on their respective tax residence status in the UAE.

CD 34 has now provided an exemption for the prorated net profit in the hands of an investor from an exempt QIF, subject to the following exceptions:

• Where the QIF (except REIT) does not meet the diversity of ownership condition, the Taxable Income of the investor that is a juridical person shall be adjusted to include the prorated net profit of the QIF.
  • However, relief is available to investors for the first two years following the establishment of the fund, provided there is sufficient evidence to demonstrate fund’s intention to meet the condition by the third financial year.
  • A further grace period of 90 days is available if the condition is breached beyond the second year due to circumstances beyond the control of the QIF or its investors, or due to the liquidation of the QIF.

• Where the QIF (except REIT) has IPP exceeding 10% in a financial year, then even if the diversity of ownership condition is met, the taxable income of a juridical person investor for the relevant tax period will be adjusted to include 80% of the prorated IP income. Similarly, in the case of a REIT, the taxable income of a juridical person investor will be adjusted to include 80% of the prorated IP income2.
  
  • However, if 80% or more of the IP income is distributed within nine months and the investor has exited the fund prior to the date of distribution, such income is not taxable in the hands of that investor.
  • Further, where an investor derives capital gains upon exit from the QIF, and such gains are not exempt under the participation exemption, a deduction is allowed for any undistributed income of the QIF on which the investor has already paid tax, to avoid double taxation.

Consequently, since the profit earned by a QIF (including REIT) is being assessed for taxability in the hands of investors, all profit distributions by the QIF are exempt in the hands of the investor, without any limitations.

The above provisions are equally applicable to non-resident investors. However, they may appoint a Tax agent to meet their compliance obligations under the CT Law.

CTP005 states that the legal owner of the ownership interest in the REIT is considered as the investor for the purposes of meeting the required CT obligations. Therefore, when an investment manager or custodian (UAE-based or foreign) invests on behalf of a pool of investors and is the legal owner of the ownership interest in the REIT, the investment manager or custodian will be responsible for meeting the CT obligations of the investor.

A QIF is deemed to have elected to apply for depreciation deduction for investment properties recorded at Fair Market Value (FMV).

Investors in QIFs/REITs have the option to claim a depreciation adjustment when calculating their taxable income. However, investors are required to reverse such depreciation adjustments when the QIF/REIT disposes off Immovable Property, or when the investor disposes off its interest in the QIF/REIT.

A QLP can apply to be exempt from CT if all of the following conditions are met:

• The principal business or business activities conducted by a QLP is an investment business
• The QLP does not derive any income from the exploitation of Immovable Property located in the UAE
• The main or principal purpose of the QLP is not to avoid CT

A juridical person wholly directly or indirectly owned and controlled by an exempt QLP can also apply for exemption if it meets the required conditions.

If a QLP does not apply for exemption in its first applicable tax period or fails to meet any of the conditions, it shall cease to be considered an exempt person for that tax period and for the subsequent four tax periods.

A QLP that is not exempt can explore other exemptions available under the UAE CT Law, such as the Qualifying Free Zone Person (QFZP) regime or the QIF regime.

Unlike the QIF regime, the QLP regime does not impose a diversity of ownership condition. A QLP is treated as a tax-transparent entity, i.e. income earned by the QLP (and its wholly owned entities) is taxable in the hands of juridical investors on a proportionate basis. Consequently, all profit distributions by the QLP are exempt in the hands of investors, without limitation.

The investment manager’s income needs to be adjusted to include the net income attributed to the QIF/QLP arising from the activities of the investment manager.

CTP005 states that if the investment manager creates a permanent establishment for the REIT in the UAE and is not remunerated at arm’s length, its taxable income shall be adjusted to include an arm’s length management fee.

CD 35 has replaced CD 56 to specify the cases in which a non-resident juridical investor is considered to have a nexus in the UAE and therefore subject to taxation.

In addition to creating a nexus on earning IP income, a nexus will also be deemed to exist for a non-resident juridical investor in the following scenarios:

• For QIFs other than REITs:
  • Failure to meet the diversity of ownership condition 
  • Failure to meet the IPP condition

• For REITs being QIFs:
  • In all cases

Additionally, the Decision clarifies the timing of the nexus as follows:

• If 80% or more of the IP income is distributed within nine months, the nexus is triggered on the date of distribution.
• In all other cases, the nexus is triggered on the date of acquiring the interest in the UAE immovable property.

CTP005 has clarified that a new FTA decision will be issued to cover timelines and procedure for registration in such cases.

The new Decisions show a clear intent to bring income from immovable property under the tax net.

QIFs will no longer be treated as tax-transparent entities and will be treated as exempt entities unless they fail to meet the diversity of ownership condition or hold UAE immovable property exceeding 10% of their total assets (in which case the juridical investors would be subjected to CT).

Additionally, the QLP regime (effective from 1 January 2025) provides a tax-transparent status to juridical partnerships, resulting in the taxation of QLP income at the investors' level. A juridical partnership must apply for exemption within the first tax period in which CD 34 becomes applicable. Otherwise, it will be ineligible for exemption for the next four years. Therefore, QLPs should assess their eligibility and apply for exemption within the specified deadline.

QIFs and REITs need to analyze the impact of these decisions on their eligibility for exemption for tax periods beginning on 1 January 2025.

The tax implications for investors have changed significantly, requiring them to undertake a detailed assessment to understand their tax implications. Since CD 34 is applicable only to tax periods commencing on 1 January 2025, it could result in different tax treatments for investors for periods prior to that date.

The nexus rules for non-resident juridical investors have been expanded, potentially resulting in non-exempt income becoming subject to tax. Thus, non-resident investors must ensure that their tax obligations under the UAE CT Law are met. They have been permitted to appoint tax agents to assist in this regard.

Natural persons investing in QIF or REIT remain outside the scope of CT even if they hold the investments as part of a business or business activity.

It is currently unclear whether, in a situation where a new fund fails to meet the diversity of ownership condition in the third year, investor taxation would apply retrospectively from the first year or only from the third year.

The new rules also introduce significant investor reporting obligations for investment managers, which are a prerequisite for a QIF or REIT to obtain tax-exempt status. Fund managers will need to monitor and track immovable property values, identify the related income, and report relevant details to investors. This may result in an increased administrative burden for both investment managers and investors. Moreover, investment managers holding the legal ownership interest in a REIT will be required to fulfill CT obligations in the capacity of an investor.