What Are The Conditions That Are To Be Met For Getting Qualifying Investment Fund Status Under CT?

The introduction of the UAE Corporate Tax has resulted in multiple changes; any entity planning to start a business in the UAE must be aware of certain corporate tax implications and the effect of the new regime on their businesses. The implementation of CT on investment funds is one such area that is to be known by the entities such as investors and the investment funds.

Qualifying investment fund status enables an investment fund to get the exempt status on application under the CT law. In order to get that status, the investment funds are required to meet certain conditions as per the CT regime. 

In this blog we will highlight the certain conditions that are to be met in order to get the Qualifying Investment Fund status and the effect of non-compliance with these conditions.

What Are the basic Conditions to Qualify for Qualifying Investment Fund status?

The conditions that are to be met in order to get the Qualifying Investment status are included under Article 10(1) of the CT law and the Cabinet Decision No.81 of 2023. The conditions under the UAE corporate tax law are as follows:

• The first mandatory condition is the “Regulatory Oversight Condition,” as per which the investment fund or the investment fund manager is required to get the regulatory oversight from the competent authority of the UAE or any other relevant foreign competent authority.
• Another condition is part of the “Fund Ownership Condition,” whereby the interest in the investment funds is to be traded via any recognised market or stock exchanges or else must be marketed and made available for the investors as to the extent possible.
• The further condition also includes the “Main Purpose Condition,” according to which the main motive of the investment funds must not be to prevent CT.

What Are the Additional Conditions That Are To Be Met?

There are some certain additional conditions which are to be met by the investment funds other than the REITs, which are set under the Cabinet Decision No.81 of 2023. These conditions include the following:

• The investment fund must conduct the investment business activities only, and it must be its primary business or business activities, along with any additional or incidental business or business activities conducted by the investment fund entity.
• Another additional condition includes that any single investor, along with its related parties, must not own: 
• more than 30% of the ownership interests in any of the investment funds where the number of investors is lower than 10,
• more than 50% of the ownership interest in any of the investment funds, where there are around 10 or more investors in the investment fund
• Another condition is the “Investment Manager Condition,” as per which the investment manager who manages the investment fund must have a minimum of three investment professionals.
• The further condition includes the “Independence Condition,” according to which the day-to-day management of the investment funds must not be influenced or controlled by the investors; they must not have control over such operations.

These conditions are not required for the REITs; hence there are additional specific conditions for the REITs, devised under the Cabinet Decision No. 81 of 2023. These additional conditions are included as follows:

• The first condition is based on “The REIT minimum real estate asset value condition.” As per this condition, the real estate asset value without the land exceeds the value of AED 100 million, which might be under the ownership and management of the REIT.
• Further conditions to be met are the “REIT ownership condition,” whereby at least 20% of the share capital of any REIT is to be floated in any recognised stock exchange, or it must be wholly owned by the institutional investors directly as per Article 5 of the same cabinet decision, but it must be kept in mind that 2 of the institutional investors must not be the related parties to the REIT.
• The average 70% of the real estate asset must be at least maintained by the REIT during the relevant period as per the Gregorian calendar for which the accurate financial statements are to be prepared.

What Is The Consequence of Non-Compliance With The Conditions?

If the investment fund entities fail to meet the conditions, then there are certain consequences, the primary of which is the cessation of the qualifying investment fund status.

If any of the certain conditions are breached or not met during a certain tax period, then the entity will not be considered as an exempt person under the CT law from the start of the relevant tax period in which the breach was made.

The Qualifying Investment Funds may not lose their status as exempt persons in certain situations where:

• The breach of condition is as a result of its liquidation or termination.
• The noncompliance to the conditions is caused temporarily, and the procedures are under way to rectify the noncompliance to the certain condition.

How Can CDA Meet Your Tax Requirements?

Understanding the CT regime and its implementation in the business might be complicated, especially in a competitive market like the UAE, where you have to give equal and more focus on the core operations of the business. In such situations our tax professionals are always ready to lend a hand in ascertaining the tax payments and returns and ensuring compliance with the new regime.

If you require any assistance regarding the tax matters, connect to our team now.

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