The UAE Federal Tax Authority (FTA) has issued a clarification regarding Corporate Tax rules for investors in Real Estate Investment Trusts (REITs) that qualify as exempt funds. The guidance details the tax obligations for these investors, providing clarity on exemptions, income distributions, and compliance requirements as the new tax regime comes into effect on January 1, 2025.
This update ensures that both resident and non-resident investors understand their tax responsibilities within the UAE’s REIT sector.
Clearer Rules on Taxable Income and Exempt Distributions
Under the updated rules, investors—whether resident or non-resident—who hold units in a qualifying REIT will be taxed on 80% of the income generated from immovable property in the UAE. The tax is applied based on the proportion of income each investor receives.
However, investors will be exempt from paying taxes on this income if the REIT distributes it within nine months of the financial year’s end. Additionally, if an investor has disposed of all their units in the REIT by that time, they will not be subject to corporate tax on the property income.
The FTA has confirmed that REIT investors are considered legal owners of their holdings for tax purposes. As a result, they must calculate and report taxable income accordingly.
Investors Must Comply with New Reporting and Disclosure Rules
The FTA has outlined several key compliance measures for both REITs and investors. These include:
- Profit Distributions: Provides clarity on how dividends from REITs impact taxable income.
- Investment-related Expenses: Allows investors to deduct certain expenses tied to their investments.
- Asset Disposal: Clarifies tax treatment when investors sell or transfer REIT units.
- Fee Adjustments: Addresses how changes in investment manager fees influence tax calculations.
- Disclosure Obligations: Requires REITs to provide investors with essential financial data to help them calculate taxable income.
- Non-resident Representation: Permits non-resident investors to appoint tax agents to assist with their Corporate Tax obligations.
The FTA has included examples and scenarios to help investors understand and comply with their tax obligations effectively.
Definitions and Ownership Requirements Clarified
Immovable property income is defined as the net profit derived from real estate assets in the UAE, whether through leasing, selling, or other uses. It also includes any rights associated with these properties.
For a REIT to maintain its exempt status under UAE Corporate Tax Law, the income must be fully owned and controlled by the fund, whether directly or indirectly. This income must appear on the REIT’s financial statements.
This clarification helps to create a transparent and predictable regulatory environment, making the UAE a more attractive destination for real estate investment.
