UAE clarifies tax rules for real estate investors

The Federal Tax Authority (FTA) has issued a public clarification regarding Corporate Tax on the tax treatment of investors in a Real Estate Investment Trust (REIT) who are exempt from Corporate Tax as a Qualified Fund.

The general clarification offers a detailed explanation of:

• The income of legal persons invested in REITs that are subject to corporation tax
• The relevant tax period in which these investors will be subject to tax
• The compliance obligations of the REIT and investors

UAE Corporate Tax for REIT investors

It also provides a comprehensive analysis of these topics and related matters, in addition to examples to increase the awareness of taxpayers concerned with the tax treatment of investors in qualifying REITs that are exempt from corporation tax.

Full details of the clarification can be found here.

The announcement also explained all matters related to the tax treatment of investors in qualified REITs who are exempt from corporate tax.

These include:

• The distribution of profits by a real estate fund to its investors
• The expenses incurred by the investor in relation to his or her investment in the fund
• The disposal of his or her investment in the fund
• The adjustment of the fees accruing to the investment manager
• The obligation of the fund to provide its investors with the necessary information to calculate their taxable income
• The appointment of a tax agent to act – on behalf of the non-resident investor in a real estate investment fund – to assist them in fulfilling their tax obligations

According to the FTA’s clarification for tax periods beginning on or after the January 1 2025, resident and non-resident legal persons investing in a REIT that is exempt from corporate tax will be subject to corporate tax on a pro-rata basis on 80 per cent of the immovable property income generated by the REIT.

Should the REIT distribute its immovable property income within nine months of the end of its financial year, and the investor has not received a share of the dividends (as a result of the disposal of their entire ownership interest in the REIT), they will not be subject to corporate tax on the immovable property income realised from the fund.

For the purposes of UAE Corporate Tax Law, the investor in a REIT is considered the legal owner of the ownership interest in the fund.

According to the clarification, income from immovable property is the net profit realised from real right in immovable property located in the UAE, and from its sale, disposal, transfer of rights, direct use, leasing and exploitation in any other form.

All of which must be determined based on the financial statements of the REIT and specific categories of exempt persons, where such income is fully owned and fully controlled directly or indirectly by the REIT in the UAE.