Legislation Details
- Full Title: Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax
- Law Type: Federal Decree-Law
- Law Number: No. (81) of 2023
- Issued Date: 18 Jul 2023
- Effective Date: 01 Aug 2023
- Official Gazette: No. 756
- Sector: Tax
- Status: Active
- Number of Articles: 24
- Chapters/Parts: 0
- Amendments: 0
Summary
This Cabinet Resolution sets out the conditions for mutual funds to qualify as "Qualifying Mutual Funds" for the purposes of the Federal Decree-Law on Corporate and Business Tax. It establishes the requirements for mutual funds, including real estate investment trusts (REITs), to be exempt from corporate tax in the UAE. The resolution is significant for businesses and investors as it provides clarity on the tax treatment of mutual fund investments and aims to promote the UAE's position as an attractive destination for investment funds. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1-8)
What is the scope and purpose of this law?
The scope of this Cabinet Resolution is to define the conditions for mutual funds, including REITs, to qualify as "Qualifying Mutual Funds" and be exempt from corporate tax in the UAE. The purpose is to provide a regulatory framework for the tax treatment of mutual fund investments in accordance with the Federal Decree-Law on Corporate and Business Tax. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1-2)
What are the key definitions under this law?
The key definitions under this law include:
- Investment Business: The issuance of investment interests to raise funds or pool investors' funds or establish a joint Mutual Fund with the aim of enabling the owners of such invested funds to benefit from the profits or gains resulting from the entity's acquisition, holding, management or disposal of investments, in accordance with the applicable legislation of the State. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1)
- Real Estate Gains: Gains generated from the sale or disposal of land or real estate. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1)
- Real Estate Income: The income generated from renting out land or real estate, not including Real Estate Gains. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1)
- Real Estate Asset Percentage: A portion of the Real Estate Income generating assets as a percentage of the total value of the assets of the Mutual Fund. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1)
- Real Estate Investment Trust (REIT): A real estate fund as defined in the applicable legislation of the State. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1)
- Corporate Tax Law: Federal Decree-Law No. (47) of 2022 on Corporate and Business Tax. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 1)
What are the main obligations and requirements?
The main obligations and requirements under this law are: 1. Mutual funds, excluding REITs, must meet the following conditions to qualify for corporate tax exemption: a. The main business activities must be investment business activities, with any other activities being ancillary or incidental. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 2(1)(a)) b. No single investor and its related parties can own more than 30% of the ownership interests if the fund has less than 10 investors, or more than 50% if the fund has 10 or more investors. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 2(1)(b)) c. The mutual fund must be managed or advised by an investment manager with a minimum of three investment professionals. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 2(1)(c)) d. Investors must have no control over the day-to-day management of the mutual fund. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 2(1)(d)) 2. REITs must meet additional conditions to qualify for corporate tax exemption, including having at least AED 100 million in real estate assets, having at least 20% of their share capital floated on a recognized stock exchange or owned by specified institutional investors, and maintaining an average real estate asset percentage of at least 70%. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 3)
What are the provisions regarding investor income?
The law includes the following provisions regarding the income of investors in Qualifying Mutual Funds: 1. The income of a taxable person who is an investor in a Qualifying Mutual Fund shall be adjusted to include their proportionate share of the income and expenditure of the Qualifying Mutual Fund, as reflected in the fund's financial statements. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 4(1)) 2. The investor's income shall not include any dividends received from the Qualifying Mutual Fund, as these would have already been included under the adjustment in Clause 1. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 4(2))
What are the provisions regarding corporate investors?
The law defines a "Corporate Investor" as any of the following: 1. The Federal Government 2. A Local Government 3. A Government Entity 4. A Government Controlled Entity 5. A foreign government, its institutions and authorities or the companies fully owned by any of them 6. International organizations 7. A bank 8. An Insurance Service Provider 9. A pension or social security fund 10. An investment entity licensed by a relevant competent authority or a similar regulatory authority in or outside of the State 11. Any other juridical person determined by the Authority (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 5)
How does the law treat unincorporated partnerships?
The law states that an Unincorporated Partnership that is considered a Taxable Person in its own right in accordance with Article 16 of the Corporate Tax Law shall be considered an entity under the definition of the Qualifying Mutual Fund under the Corporate Tax Law. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 6)
What provisions are made for implementing resolutions?
The law states that the Minister may issue the necessary resolutions to implement the provisions of this Cabinet Resolution. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 7)
When did this law come into effect?
This Cabinet Resolution shall be published in the Official Gazette and shall enter into force as of the day following the date of its publication, which was 31 July 2023. (Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax, 2023, Art. 8)
Source Documents
This article analyses Cabinet Resolution Concerning the Conditions for Qualifying Mutual Funds for the Purposes of Federal Decree-Law Concerning the Corporate and Business Tax for legal research and educational purposes. For the purpose of interpretation and application, reference must be made to the original Arabic text. In case of conflict, the Arabic text prevails. This does not constitute legal advice.