UAE Implements New Cabinet Decision to Enhance Investment Capital and Collaborative Endeavors through Tax Reforms
The United Arab Emirates (UAE) has made significant changes to its corporate tax framework for Qualifying Investment Funds (QIFs), Qualifying Limited Partnerships (QLPs), and Real Estate Investment Trusts (REITs) under Federal Decree-Law No. 47 of 2022 on Corporate Tax. The updates, detailed in the recent Cabinet Decision No. 34 of 2025 and Ministerial Decision No. 173 of 2025, aim to enhance the attractiveness and clarity of the UAE’s fund and partnership investment environment.
Depreciation Deductions for Investment Properties
Under the new rules, QIFs, QLPs, and REITs that are exempt under Article 10 of the Corporate Tax Law are deemed to have elected to apply a depreciation deduction for investment properties held at fair value. This means that investors in such entities will automatically benefit from depreciation deductions on these properties. However, upon disposal of the property or ownership interest, all previously claimed depreciation must be added back to the investors' taxable income.
Revised Eligibility and Operational Criteria
Cabinet Decision No. 34 of 2025, which supersedes the earlier Cabinet Decision No. 81 of 2023 for tax periods starting January 1, 2025, revises eligibility and operational criteria for QIFs, REITs, and QLPs. Updates include revised conditions for qualifying as a QIF, updated eligibility criteria for REITs, modified requirements for QLPs, and a new provision allowing juridical persons wholly owned by a QLP (and engaging in similar activities) to apply for corporate tax exemption.
Tax-Transparent Status for Investment Funds and Partnerships
The extension of tax-transparent status aligns with international best practices. This means that income distributions received by investors in exempt QIFs are excluded from their taxable profits, simplifying the tax treatment of profit distributions to investors. The decision also extends tax-transparent status to certain limited partnerships.
Grace Period for Compliance and Favourable Tax Exemptions
Even if QIFs breach the 10% real estate asset threshold or diversity of ownership requirements, they will be given a 90-day grace period annually to regain compliance without losing tax benefits. QIFs that adhere to a 10% real estate asset threshold and diversity of ownership requirements will continue to receive favourable tax exemptions. Breaches of the diversity rule in QIFs will now only affect the responsible investors, not the fund as a whole.
Attracting Global Investors
The strategic update combines regulatory clarity with tax efficiency, reinforcing the UAE's position as a forward-thinking, investor-friendly jurisdiction. The extension of tax-transparent status enhances the UAE’s appeal to global investors. Foreign juridical investors in compliant REITs and QIFs will only need to register for Corporate Tax upon dividend distribution.
In summary, the UAE’s corporate tax framework now explicitly allows certain investment funds and partnerships to leverage depreciation deductions on investment properties held at fair value while outlining clear rules on recapturing depreciation on disposal and managing investor income taxation. These provisions support enhancing the attractiveness and clarity of the UAE’s fund and partnership investment environment under the new corporate tax regime.
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