New FTA’s Public Clarification on the UAE corporate tax treatment of REIT investors

CLIENT BRIEFING NOTE

Subject: Taxation of Investors in Exempt REITs under UAE Corporate Tax Law

Date: May 2. 2025

Effective From: 1 January 2025

Reference: FTA Public Clarification CTP005

1. Purpose of the Briefing

This note provides a summary of the UAE Federal Tax Authority’s (FTA) guidance on the corporate tax treatment of investors in Real Estate Investment Trusts (REITs) that are exempt from corporate tax as Qualifying Investment Funds. It outlines the conditions for REIT tax exemption, the tax implications for various types of investors, and key compliance obligations.

2. Background and Legal Framework

• Corporate Tax Law: Federal Decree-Law No. 47 of 2022

• Cabinet Decision No. 34 of 2025: Qualifying Investment Funds

• Cabinet Decision No. 35 of 2025: Non-Resident Nexus

• Federal Decree-Law No. 28 of 2022: Tax Procedures

These provisions apply to tax periods beginning on or after 1 January 2025.

3. REIT Exemption Requirements

To qualify for corporate tax exemption, a REIT must meet:

A. General Conditions (per Article 10(1), Corporate Tax Law):

• Regulatory oversight in the UAE or a recognized foreign jurisdiction

• Shares are traded on a recognized exchange or widely marketed

• Primary purpose is not an obtaining of tax benefit of tax privilege.

B. Specific REIT Conditions (per Cabinet Decision No. 34 of 2025):

• Immovable property (excluding land) valued above AED 100 million

• At least:

• 20% of shares floated and not held by related parties, or

• 100% ownership by at least two unrelated institutional investors

• 70% of total assets are income-generating real estate

• Provides specified financial and tax information to investors.

4. Tax Treatment of Investors

A. Juridical Persons (Residents and Non-Residents)

• Must adjust taxable income to include 80% of their proportionate share of the REIT’s Immovable Property Income

• Applies regardless of whether distributions are received

B. Natural Persons

• Exempt from the above adjustments

• No tax applies even if investments are held as part of a business.

5. Distribution and Timing of Taxation

• A Distributing REIT is one that pays out ≥80% of immovable property income within 9 months of its financial year-end

• Income is included in investor’s return in the period of distribution

• A Non-Distributing REIT does not meet the 80% threshold

• Income is included based on the REIT’s financial year-end, prorated to the investor’s ownership and holding period

Example:

If Investor A holds 10% of a REIT and the REIT earns AED 1 million in immovable property income:

• Investor A must include AED 80,000 (i.e., 10% of 80%) in its taxable income

6. Special Considerations for Non-Resident Investors

• A Non-Resident investor will have a nexus in the UAE if subject to the 80% income adjustment

• This triggers:

• Corporate tax registration

• Filing obligations

• No nexus arises if:

• The REIT distributes ≥80% within 9 months, and

• The investor disposes of the interest before the distribution date

7. Gains on Disposal of REIT Interests

• Gains are exempt if the Participation Exemption conditions are met

• If not exempt:

• Investor may adjust gain to exclude previously taxed, undistributed income

• However, this cannot create a disposal loss

8. Avoidance of Double Taxation

• Distributions from REITs are excluded from taxable income if the corresponding income has already been included under the 80% rule

9. Investment Manager Tax Treatment

• Managers are subject to corporate tax on arm’s length management fees

• Adjustments required if fees are not at arm’s length or are not accounted for in REIT financials

• Investors must exclude such fees from their income adjustments to prevent duplication

10. REIT Disclosure Obligations

REITs must provide investors with:

• Total Immovable Property Income

• Confirmation of distributing status

• Depreciation deductions by property

• Details of property disposals with previously claimed depreciation

Failure to comply with these obligations may result in loss of exempt status.

11. Appointment of Tax Agents

• Non-Resident investors may appoint a Tax Agent (directly or via the REIT or investment manager)

• Both parties must approve the appointment

• Investors remain legally responsible for compliance under the Corporate Tax Law

12. Key Takeaways and Action Points

• REITs must ensure compliance with exemption conditions and timely disclosure of required data

• Juridical investors should plan for income adjustments and track holding periods

• Non-Resident investors need to assess nexus risk and register where necessary

• Investment Managers should evaluate their fee structures and arm’s length compliance

• Consider the Participation Exemption and relevant disposal adjustments to mitigate tax exposure

13. Next Steps

We recommend:

• Reviewing REIT status under Cabinet Decision No. 34 of 2025

• Assessing your corporate tax exposure as an investor

• Implementing systems to track ownership and distributions

• Seeking advice on registration and filing obligations for non-residents

If you require assistance with investor classification, REIT compliance status, or Corporate Tax registration, please contact us.

DISCLAIMER: This note is for general informational purposes only and does not constitute legal or tax advice. Specific advice should be obtained based on your circumstances.