22 April 2025 • 4 minute read
UAE Cabinet Decision introduces tax changes to Qualifying Investment Funds and Qualifying Limited Partnerships
Introduction
On 5 April 2025, the UAE Ministry of Finance (MOF) published Cabinet Decision No. (34) of 2025, introducing significant changes to the regimes governing Qualifying Investment Funds (QIFs) and Qualifying Limited Partnerships (QLPs) for purposes of the Corporate Income Tax (CIT) regime.
Whilst the changes entail improvements for investment funds and investors, the Cabinet Decision does also bring in certain complexities for QIFs and QLPs. The new Cabinet Decision replaces the previous Cabinet Decision No. (81) of 2023, and it has retroactive effect to Tax Periods starting on or after 1 January 2025.
Main changes
At a high level, the main changes for QIFs and QLPs as well as their investors are as follows:
Conditions for tax exempt QIFs
The new Cabinet Decision introduces a new condition where the fund must provide its investors with all information, documents and data necessary for the purposes of calculating their Taxable Income for CIT purposes. At the same time, the previous conditions on (i) the required diversity of fund ownership, and (ii) the need to have the fund managed by at least three investment professionals, have been removed in the new Cabinet Decision.
Investment income for QIF investors
Under the old Cabinet Decision, investors in QIFs who would qualify as Taxable Persons under the CIT regime would need to include in their Taxable Income their proportionate share of net income available for distribution. The new Cabinet Decision no longer includes this requirement and instead stipulates that a Taxable Person who invests in a tax exempt QIF shall exclude from its Taxable Income any profit distribution received from such QIF.
Exceptions apply however where a QIF has less than ten investors and the relevant investor is a juridical person owning, benefiting or controlling 30% or more of the Ownership Interests in the QIF. Where the QIF has more than nine investors, the mentioned Ownership Interest test is increased to 50%. In those cases, the juridical person investing in the QIF must include in their Taxable Income their proportionate share of the QIF's net profits. It should be noted that the above Ownership Interest exceptions do not apply in the first two Financial Years of the QIF, provided it also has the intention to comply in year three.
Conditions for tax exempt QLPs
The new Cabinet Decision introduces a new concept of the QLP, which entails that limited partnerships that are juridical persons, can apply with the Federal Tax Authority to be treated as tax exempt, provided the following conditions are met:
- The principal business of the QLP must be investment business;
- The QLP must generate income from real estate in the UAE; and
- The main or principal purpose of the QLP should not be to avoid CIT.
Unlike the QIF regime, there are no ownership diversity tests for the QLP regime. In addition, the above exemption can be extended to juridical persons wholly owned and controlled by the QLP, provided certain conditions are met.
Investment income for QLP investors
The new Cabinet Decision stipulates that a Taxable Person who invests in a tax exempt QLP shall exclude from its Taxable Income any profit distribution received from such QLP. Where the investor is a juridical person that is a Taxable Person, its Taxable Income shall include its proportionate share of the QLP's prorated net income.
Conclusion
Whilst the Cabinet Decision No. (34) of 2025 introduces several improvements for Qualifying Investment Funds and Qualifying Limited Partnerships, as well as their investors, from a UAE Corporate Income Tax perspective, the changes also bring in a certain degree of complexity.
We recommend taxpayers to carefully monitor the release of new regulations, as these include important tax changes for the UAE investment fund industry.