The change adopts the newly issued relation of foreign (non-resident) investors with tax nexus in the UAE. In comparison to Cabinet Decision No 56 of 2023, this decision supersedes the former. It sheds important details regarding overseas entities which are decidedly participative in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs).
What is New In Dubai Tax Nexus Decision
This is the first time that the Ministry of Finance from UAE is setting out clearly when a foreign, be it a person or a company, comes within the taxable scope of the country (nexus). Under this new resolution, foreign shareholders as part of certain investment frameworks will have an assurance of knowing when precisely they fall under the Corporate Tax Law enabling them to operate within clearer bounds.
Elucidation of Tax Nexus for Non Residents
The new decision puts a bound on foreign investors to define where they do have the tax link with the UAE. Thus, investors who do not reside in the UAE are eligible to bear the burden of taxes if they are within the scope of definition laid out in the newly framed policies.
Impact on Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs)
The most impactful change in the policy decision concerns International Investors in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs). As non-resident investors are now specified to have a taxable Presence in the UAE by the new guidelines if their activities meet particular thresholds. This implies that non-residents who previously had no tax obligations in the UAE may now face tax liabilities.
QIFs: Foreign investors in these funds must carefully review the new decision to ascertain whether their degree of participation would result in a tax nexus.
REITs: Similarly, foreign investors in UAE-based REITs may now become subject to corporate tax due to the scale and nature of their investments.
Superseding Cabinet Decision No 56 of 2023
This updated decision repeals and replaces the previous Cabinet Decision By refining the criteria of where a foreign entity or individual is deemed to have a taxable presence in the UAE. This will be an issue with most companies and investors who were previously compliant and who are now left scrambling trying figure out how to implement the new rules in their tax strategies.
Why is This Important for International Investors?
If you an international investor having interests in the QIFs or REITs, you should brace yourself. The UAE continues to develop its tax policies, and this one underscores at what point their investments will suffer corporate tax expenses. If you are an investor with non-residency status, you could now owe taxes in the UAE should your investment activities satisfy some criteria.
This continues to maintain the tax attractiveness of the UAE jurisdiction for business structuring, while still considering international norms of taxation. For investors outside the UAE, these policies will offer improved clarity, increased compliance expectations, and enhanced equity in the taxation system.
What are the implications… for you?
Foreign nationals with stakes in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs) based in the UAE are now challenged with the highly complex task of determining whether their investment activity and degree of participation established a tax nexus in the UAE. Here’s what you might want to think about:
Do you possess ownership in a QIF or a REIT?
Does your participation exceed the set limits that would generate a tax within competence?
Are you a legal entity or a body corporate?
If you fit the established criteria, then actually constitute an important shift in your tax obligations by making you potentially liable for corporate tax.
Revised Decision Summary
The new tax nexus determination issued by the UAE explains the circumstances under which foreign investors in QIFs and REITs become liable for corporate tax.
Foreign investors who have non-resident status will only pay tax if their operations in the UAE create a nexus that is liable to tax.
The new decision supersedes Cabinet Decision No 56 of 2023 and provides clearer guidelines on the tax regime applicable to foreign investors.
Foreign investors in QIFs and REITs need to analyze their participation in these vehicles in order to comply with the stringent requirements of the new tax legislation.
Final Remark: Anticipate Changes in Tax Policy
Foreign investors need to keep a close watch on the evolving tax framework of the UAE since it could lead to unanticipated outcomes. If you are a part of the QIF or REIT, the new decision necessitates reviewing your overall tax strategy. Work with qualified professionals to navigate the changes to the rules and make the most of your tax planning.