FAQs Article 15: Investment Manager Exemption
Source: https://mof.gov.ae/corporate-tax-faq/
- What is an investment fund?
An investment fund is an entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investor fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, in accordance with the applicable legislation.
- Will investment funds be subject to UAE CT?
Investment funds are commonly organised as limited partnerships (as opposed to corporate entities) to ensure tax neutrality for their investors. This tax neutrality follows from the fact that most countries treat limited partnerships as transparent (‘flow through’) for domestic and international tax purposes, which puts investors in the fund in a similar tax position as if they had invested directly in the underlying assets of the fund. Investment funds that are structured as partnerships, unit trusts and other unincorporated vehicles would generally be treated as fiscally transparent “Unincorporated Partnerships” for the purposes of UAE CT.
Investment funds that are structured as corporate entities, including Real Estate Investment Trusts, or partnership funds that apply to be treated as a “Taxable Person” for UAE CT purposes in their own right, can apply to the Federal Tax Authority to be exempt from UAE CT subject to meeting certain requirements.
- What is a recognised stock exchange?
A recognised stock exchange includes:
- UAE: Any stock exchange established in the UAE that is licensed and regulated by the relevant competent authority (e.g. Nasdaq Dubai, Abu Dhabi Securities Exchange, or Dubai Financial Market);
● Foreign: Any stock exchange established outside the UAE of equal standing to the stock exchange in the UAE.
- Will a UAE based investment fund manager be subject to UAE CT?
Yes. If the investment fund manager is a UAE resident, or if it operates in the UAE through a permanent establishment, the investment fund manager will be subject to UAE CT on the income it earns.
- For the purpose of benefiting from the CT exemption, are both the investment fund and the fund manager required to be subject to regulatory oversight?
For the investment fund exemption, either the investment fund or the manager of the fund is required to be subject to regulatory oversight, not both.
- Could a UAE-based investment manager create a UAE taxable presence for its foreign customers?
Under the so-called “Investment Manager Exemption”, regulated UAE investment managers can provide discretionary investment / asset management services to foreign funds and customers without creating a permanent establishment for the foreign investors or the foreign investment fund in the UAE, where certain conditions are met.
- Could the activities of a UAE-based investment manager result in a foreign investment fund / vehicle to be considered resident in the UAE for UAE CT purposes?
Where the conditions of the Investment Manager Exemption are met, a UAE-based investment manager should not create possible UAE residency for CT purposes for the foreign investment fund / investment vehicle it manages.
- Can investment holding companies and Special Purpose Vehicles used by an investment fund benefit from an exemption form UAE CT?
Wholly-owned UAE investment holding companies and other Special Purposes Vehicles used by an investment fund to deploy capital and hold investments can apply to the Federal Tax Authority to benefit from the UAE CT exemption granted to the investment fund.
- Are UAE branches separate juridical persons?
No. UAE branches of a domestic or a foreign juridical person are an extension of their “parent” or “head office” and, therefore, are not considered separate juridical persons.
- Will the income of UAE branches of a UAE business be subject to UAE CT?
Yes. The income of UAE branches will be included in the taxable income and UAE CT return of their UAE “parent” or “head office”.
- Are UAE branches of a UAE juridical person required to separately register or file for UAE CT?
UAE branches of a UAE juridical person are not required to separately register or file for UAE CT.
- Will the income of foreign branches of a UAE business be subject to UAE CT?
The income of foreign branches or foreign permanent establishments of a UAE business will be included in the taxable income and UAE CT return of their UAE “head office”, unless the UAE business elects to claim an exemption for its foreign branch profits. This exemption is available for foreign branch profits that have already been subject to tax in the foreign jurisdiction.
- Will UAE branches of foreign businesses be subject to UAE CT?
Where no election is made or the income of the foreign branch or permanent establishment is not eligible for an exemption from CT, the UAE CT payable on the income of the foreign branch or permanent establishment can be reduced by the corporate tax (or similar) paid on the relevant income in the foreign jurisdiction.
- Will a UAE branch constitute a taxable Permanent Establishment for the foreign business?
A UAE branch of a foreign business would generally be subject to UAE CT, unless the activities of the branch do not give rise to a permanent establishment in the UAE for CT purposes (see Section I ‘Foreign persons’).
- What are preparatory or auxiliary activities?
Preparatory or auxiliary activities are those performed in preparation or in support of more substantive business activities of the foreign entity. Examples of preparatory and auxiliary activities include storage, display or delivery of goods or merchandise belonging to the foreign entity, limited marketing and promotional activities, performing market research and attending seminars or conventions.
Where relevant, the application of an international agreement for the avoidance of double taxation should be taken into consideration when determining whether a permanent establishment exists or whether the activities performed are preparatory or auxiliary in nature.
