The UAE’s Federal Tax Authority (FTA) issued today a new public clarification regarding corporate tax on the tax treatment of investors in a Real Estate Investment Trust (REIT) who are exempt from corporate tax as a Qualified Fund.
The purpose of the FTA’s clarification is to clarify the income that will be taxed in the hands of juridical persons that are investors in a REIT, the relevant tax period in which the income shall be taxed for such investors, the compliance obligations of the REIT and the investors and other related matters.
For tax periods commencing on or after January 1, 2025, where a REIT is exempt from UAE corporate tax, resident and non-resident juridical persons that are investors in the REIT are subject to corporate tax on 80 percent of the prorated immovable property income of the REIT.
However, if the REIT makes a distribution within 9 months from the end of its financial year and the investor did not receive the dividend distribution due to the disposal of its entire ownership interest in the REIT, the investor will not be subject to corporate tax on the immovable property income of the REIT
For the purposes of the corporate tax law, an investor in a REIT is the legal owner of the ownership interest in the REIT, explained the FTA in the announcement.
Avoiding double taxation
The FTA noted that to avoid double taxation, any profit distributions received by an investor that is a taxable person from the REIT shall be excluded from its taxable income, given that the income would have already been attributed to the investor. In addition, the expenses incurred in relation to an investor’s investment in a REIT are deductible, subject to the provisions of chapter nine of the UAE corporate tax law.
When the investor disposes of its ownership interest in any REIT, any gain or loss on such disposal shall be exempt income if the conditions of participation exemption are met.
Moreover, an investment manager of a REIT is subject to UAE corporate tax on the arm’s length management fee. If the investment manager creates a permanent establishment for the REIT in the UAE, and it is not remunerated at arm’s length, its taxable income shall be adjusted to include an arm’s length management fee.
Providing information to investors
One of the conditions for a REIT to be a Qualifying Investment Fund in the UAE and thus an exempt person is that the REIT provides its investors with all information, documents and data necessary for the purposes of calculating their taxable income as per Cabinet Decision No. 34 of 2025.
A REIT shall provide the following information in respect of the period to which the distribution relates, or the relevant financial year of the REIT, as the case may be:
- The amount of Immovable Property Income of the REIT.
- Whether the REIT is a distributing fund for such Financial Year.
- The amount of tax depreciation deduction for each investment property.
- Any disposals of investment property for which a tax depreciation deduction was previously claimed.
The UAE’s FTA also noted that a non-resident person can appoint a tax agent directly or indirectly through the REIT or the investment manager of the REIT. Both the non-resident person and the tax agent need to agree to the appointment.
