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Tax exemptions tipped to lure foreign investors to UAE

Ministry of Finance in Abu Dhabi. The corporate tax criteria come into force on August 1 WAM
Ministry of Finance in Abu Dhabi. The corporate tax criteria come into force on August 1
  • Investment funds to be exempt from UAE’s corporate tax
  • 9% levy introduced on June 1 for firms with income above $102,000
  • Emirati cabinet unveiled criteria for exemptions and penalties

The UAE’s decision to exempt investment funds from corporate tax will only serve to increase the attractiveness of the Emirates among global investors, taxation experts have told AGBI.

Corporate tax at a standard rate of 9 percent came into effect on June 1 for companies with taxable income of over AED375,000 ($102,000).

The UAE cabinet announced criteria for qualifying investment funds – which exclude real estate investment trusts – on Saturday alongside a raft of procedures and penalties.

Investment funds will have to be “primarily engaged in investment business activities, with ancillary or incidental activities not exceeding 5 percent of their total annual revenue”.

A single investor or its related parties cannot own more than 30 percent of a fund if the fund has fewer than 10 investors. This rises to 50 percent if the fund has 10 or more investors.

It must be overseen by an investment manager employing a minimum of three investment professionals.

Finally, the day-to-day management of the fund must not be controlled by investors.

These conditions come into force on Tuesday, August 1.

The criteria make it clear that “investors will be the beneficiary,” said Nathan Patterson, head of UAE corporate tax and finance at Dubai advisory firm Sanctuary.

The penalties set out on Saturday include fines for late filing, failure to keep appropriate records and failure to disclose and correct any errors in tax returns. The fine for non-payment will be “a monthly penalty of 14 percent per annum, for each month or part thereof, on the unsettled payable tax amount”.

The UAE introduced corporate tax as part of its efforts to align itself with international standards, particularly the minimum tax on multinational corporations endorsed by the G20 major economies.

Tyne Hugo, senior associate at law firm BSA in Dubai, said the exemption supports this effort “whilst still promoting the UAE as a competitive and sought-after investment hub”.

The UAE attracted 60 percent of the $37 billion of foreign direct investment (FDI) that came into the GCC in 2022, driven by inflows from Austria and South Korea.

The World Investment Report 2023 by the UN Conference on Trade and Development said FDI flows into the UAE jumped 10 percent year on year to reach $23 billion in 2022.

Earlier this month the UAE unveiled plans to establish a ministry to attract foreign investment.