Issue

The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business, and its amendments (“Corporate Tax Law”) applies to Tax Periods commencing on or after 1 June 2023.

A Real Estate Investment Trust ("REIT") that meets all of the conditions of Article 10(1) of the Corporate Tax Law^[1] and Article 4(1) of Cabinet Decision No. 34 of 2025 on Qualifying Investment Funds and Qualifying Limited Partnerships for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses ("Cabinet Decision No. 34 of 2025")^[2] can make an application to the FTA to be exempt from Corporate Tax as a Qualifying Investment Fund, effective from the beginning of the Tax Period specified in the application or any other date determined by the FTA.^[3]

For clarity, this clarification refers to a REIT that is, or will be, exempt from Corporate Tax as a Qualifying Investment Fund.

For Tax Periods commencing on or after 1 January 2025, where a REIT is exempt from Corporate Tax, Resident and Non-Resident juridical persons that are investors in the REIT are subject to Corporate Tax on 80% of the prorated Immovable Property Income of the REIT.^[4] However, if the REIT makes a distribution within 9 months from the end of its Financial Year and the investor did not receive the dividend distribution due to disposal of its entire Ownership Interest in the REIT, the investor will not be subject to Corporate Tax on the Immovable Property Income of the REIT (as explained below).^[5]

Summary

The purpose of this public clarification is to clarify the following:

1. The income that will be taxed in the hands of juridical persons that are investors in a REIT.

2. The relevant Tax Period in which the income shall be taxed for such investors.

3. The compliance obligations of the REIT and the investors and other related matters.

Detailed Analysis

A REIT that meets the conditions of Article 10(1) of the Corporate Tax Law^[1] and Article 4(1) of Cabinet Decision No. 34 of 2025^[2] can make an application to the FTA to be exempt from Corporate Tax as a Qualifying Investment Fund.

Where a REIT is exempt from Corporate Tax, the Taxable Income of a juridical person that is an investor in the REIT shall be adjusted to include 80% of the prorated Immovable Property Income of the REIT.^[4] However, if the REIT makes a distribution within 9 months from the end of its Financial Year and the investor did not receive the dividend distribution due to disposal of its entire Ownership Interest in the REIT, the investor will not be subject to Corporate Tax on the Immovable Property Income of the REIT.

Meaning of Immovable Property Income

Immovable Property Income is the net realised profit derived from the right in rem, sale, disposal, assignment of rights therein, direct use, letting, including subletting and any other form of exploitation of Immovable Property located in the UAE. This should be determined based on the financial statements of the REIT and any Exempt Person under Article 4(1)(f),(h) or (i) of the Corporate Tax law that is wholly directly or indirectly owned and controlled by the REIT.

Any unrealised income or expense such as fair value adjustments, impairments, shall be excluded in determining Immovable Property Income until such time it is realised and recorded in the financial statements.

In determining the Immovable Property Income, the realised income or gains from UAE Immovable Property shall be reduced by expenses directly linked to earning such income and a proportional part of the general expenses of the REIT, as per the accounting standards adopted by the REIT in preparing its financial statements. Immovable Property Income only encapsulates net realised profit and does not encapsulate a net realised loss position.

The Immovable Property Income may also be adjusted, where relevant, for any tax depreciation deduction under the decision issued by the Minister governing tax depreciation adjustments for investment properties for the purposes of the Corporate Tax Law.^[4] The tax depreciation adjustment is optional for the investor.

Investor in a REIT

For the purposes of the Corporate Tax Law, an investor in a REIT is the legal owner of the Ownership Interest in the REIT.

Nexus of an investor that is a Non-Resident Person

An investor that is a juridical person can be either a Resident Person or a Non-Resident Person. A juridical person that is not a Resident Person shall be regarded as having a nexus in the UAE if it is required to adjust its Taxable Income to include 80% of the prorated Immovable Property Income of the REIT (as explained below),^[6] and accordingly will be a Non-Resident Person under Article 11(4)(c) of the Corporate Tax Law.^[7]

Where a REIT distributes 80% or more of its Immovable Property Income within 9 months from the end of its Financial Year, an investor that is a juridical person and not a Resident Person will have a nexus in the UAE as of the date on which dividends are distributed by the REIT.^[6] If the investor did not receive a dividend distribution due to the disposal of its entire Ownership Interest in the REIT, it will not have a nexus in the UAE and, therefore, will not be considered a Taxable Person.

Where a REIT does not distribute 80% or more of its Immovable Property Income within 9 months from the end of its Financial Year, an investor that is a juridical person and not a Resident Person will have a nexus in the UAE as of the date of acquiring an Ownership Interest in the REIT.^[6]

Where a nexus is created in the UAE for an investor pursuant to the above then, the investor will be required to register for Corporate Tax purposes. The timelines and procedure for registration by such investors in a REIT will be provided for in an FTA decision to be published.

Adjustments to Taxable Income of investors in a REIT

Where a REIT is exempt from Corporate Tax, the Taxable Income of a juridical person that is an investor in the REIT shall be adjusted to include 80% of the prorated Immovable Property Income of the REIT.^[4] The relevant Tax Period in which the Taxable Income of the investor shall be adjusted depends on whether the fund is a distributing fund or a non-distributing fund.

A REIT is a distributing fund if it distributes 80% or more of its Immovable Property Income within 9 months from the end of its Financial Year. Consequently, a REIT that does not distribute 80% or more of its Immovable Property Income within 9 months from the end of the Financial Year is a non-distributing fund.

Adjustment to Taxable Income of investors in a REIT that is a distributing fund

Where the REIT is a distributing fund, the investor that is a juridical person shall be required to adjust its Taxable Income to include 80% of the Immovable Property Income of the REIT, prorated to the Ownership Interest held by the investor when the distribution takes place.^[4] Thus, in principle, the Immovable Property Income that will be taxed in the hands of the investor can be the same as the distribution received, provided that the REIT distributes at least 80% of its Immovable Property Income for the relevant Financial Year.

The prorated Immovable Property Income of the REIT shall be included in the Taxable Income of the investor for the Tax Period in which the distribution takes place.[8],[9]

Adjustment to Taxable Income of investors in a REIT that is a non-distributing fund

Where the REIT is a non-distributing fund, the investor that is a juridical person shall also be required to adjust its Taxable Income to include 80% of the prorated Immovable Property Income of the REIT (i.e. prorated to its average Ownership Interest and holding period).^[8],[9]

However, the 80% of the prorated Immovable Property Income for the relevant Financial Year of the REIT (or part thereof) shall be included in the Tax Period of the investor in which the Financial Year of the REIT ends.

Profit distribution by a REIT to investors

To avoid double taxation, any profit distributions received by an investor that is a Taxable Person from the REIT shall be excluded from its Taxable Income given the income would have already been attributed to the investor.^[8],[10]

Expenses incurred by an investor relating to their investment in a REIT

The expenses incurred in relation to an investor's investment in a REIT are deductible subject to the provisions of Chapter Nine of the Corporate Tax Law.

Disposal of investment in a REIT

When the investor disposes of its Ownership Interest in any REIT, any gain or loss on such disposal shall be Exempt Income if the conditions of Participation Exemption are met.^[11]

However, if the conditions of Participation Exemption are not met, the gain on disposal for the investor shall be adjusted to exclude any undistributed income that was included in the Taxable Income of the investor in the Tax Period of the disposal or any previous Tax Periods.^[12] However, such adjustment cannot result in a disposal loss. This adjustment in effect reduces the taxable gain on disposal to ensure that undistributed profits previously taxed in the hands of the investor are not taxed again if the value of the Ownership Interests disposed of effectively includes those profits.

When the investor that is a Non-Resident Person, disposes of its Ownership Interest in a REIT, the income from such disposal is not income attributable to the nexus of the investor under Article 12(3)(c) of the Corporate Tax Law and therefore will not be subject to tax and the application of Participation Exemption rules does not need to be considered in this case.

Adjustment of fee attributable to the Investment Manager

An investment manager of a REIT is subject to Corporate Tax on the arm's length management fee. If the investment manager creates a permanent establishment for the REIT in the UAE, and it is not remunerated at arm's length, its Taxable Income shall be adjusted to include an arm's length management fee.

Immovable Property Income (that is included in the Taxable Income of an investor) requires an adjustment to exclude an arm's length fee that is attributable to the Investment Manager of the REIT, where the Business or Business Activities of the Investment Manager are attributable to that REIT.

This exclusion ensures that there is no double taxation of the arm's length fee attributed to and taxed in the hands of the Investment Manager, if such attribution is not reflected in the financial statements of the REIT.

Obligation on REIT to provide information to its investors

One of the conditions for a REIT to be a Qualifying Investment Fund and thus an Exempt Person is that the REIT provides its investors with all information, documents and data necessary for the purposes of calculating their Taxable Income as per Cabinet Decision No. 34 of 2025.^[2]

A REIT shall provide the following information in respect of the period to which the distribution relates, or the relevant Financial Year, of the REIT, as the case may be:^[2]

• the amount of Immovable Property Income of the REIT.

• whether the REIT is a distributing fund for such Financial Year.

• the amount of tax depreciation deduction for each investment property.

• any disposals of investment property for which a tax depreciation deduction was previously claimed.

For clarity, a REIT is not required to provide investors with information that is not relevant to the investor's Corporate Tax obligations or which the investor has an obligation to keep in its own records.

For example, the REIT is not required to provide information on the investor's own acquisition cost or disposal proceeds of an Ownership Interest in the REIT.

If a REIT fails to provide the required information to its investors in relation to any of the relevant periods, it shall be regarded as failing the condition to provide information to its investors from the start of the Financial Year during which it failed to provide such information.^[13]

Appointment of a Tax Agent for an investor that is a Non-Resident Person

Any Non-Resident Person that is an investor in a REIT may appoint a Tax Agent to act on its behalf to support it to fulfil its tax obligations under the Corporate Tax Law and Federal Decree-Law No. 28 of 2022 on Tax Procedures.^[14] Such Non-Resident Person can appoint a Tax Agent directly or indirectly through the REIT or the Investment Manager of the REIT.

Both the Non-Resident Person and the Tax Agent need to agree to the appointment. The Tax Agent will need to provide evidence of the appointment when registering any Non-Resident Person. This can take the form of a power of attorney, a letter of appointment or fund documentation such as investor agreements that allows the REIT or Investment Manager to appoint a Tax Agent on behalf of the Non-Resident investor.

Where a Tax Agent is appointed, the Tax Agent is engaged by and acting on the investor's behalf with regards to the investor's Tax affairs, without prejudice to that investor's responsibility under the Corporate Tax Law.

The relationship with the Tax Agent is between the investor and the Tax Agent. The REIT's responsibility is to provide the investor or the Tax Agent with the above-mentioned information.

However, the investor's obligation to comply with the Corporate Tax Law and its implementing decisions will remain with the investor and its Tax Agent and will not pass to the REIT or the Investment Manager of the REIT.

Legislative References:

In this clarification, Federal Decree-Law No. 28 of 2022 on Tax Procedures is referred to as "Tax Procedures Law", Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business, and its amendments is referred to as "Corporate Tax Law", Cabinet Decision No. 34 of 2025 On Qualifying Investment Funds and Qualifying Limited Partnerships for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Cabinet Decision No. 34 of 2025", Cabinet Decision No. 35 of 2025 on Determination of a Non-Resident Person's Nexus in the State for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Cabinet Decision No. 35 of 2025".

Article 1 of the Tax Procedures Law defines a "Tax Agent" as any Person registered with FTA authorized by another Person to represent it before FTA, help it to perform its tax obligations and exercise its relevant Tax rights.

Article 1 of Corporate Tax Law defines the following terms as:

• "Corporate Tax" – The tax imposed by the Corporate Tax Law.

• "Qualifying Investment Fund" – Any entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investment 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 and when it meets the conditions set out in Article 10 of the Corporate Tax Law.

• "Taxable Income" – The income that is subject to Corporate Tax under the Corporate Tax Law.

• "Tax Period" – The period for which a Tax Return is required to be filed.

• "Financial Year" – The period specified in Article 57 of the Corporate Tax Law.

• "Taxable Person" – A Person subject to Corporate Tax in the UAE under the Corporate Tax Law.

• "Business" – Any activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties.

• "Business Activity" – Any transaction or activity, or series of transactions or series of activities conducted by a Person in the course of its Business.

• "Resident Person" – The Taxable Person specified in Article 11(3) of the Corporate Tax Law.

• "Non-Resident Person" – The Taxable Person specified in Article 11(4) of the Corporate Tax Law.

• "Exempt Person" – A Person exempt from Corporate Tax under Article 4 of the Corporate Tax Law.

• "Exempt Income" – Any income exempt from Corporate Tax under the Corporate Tax Law.

Article 1 of Cabinet Decision No. 34 of 2025 defines the following terms as:

• "Real Estate Investment Trust" – This term shall have the meaning provided for it in the relevant legislation in force in the UAE.

• "Immovable Property Income" – Net realised profit derived from the right in rem, sale, disposal, assignment of rights therein, direct use, letting, including subletting and any other form of exploitation of Immovable Property located in the UAE as recorded in the financial statements and in proportion to the investor's Ownership Interest and after excluding the income attributable to the Investment Manager in accordance with Article 2(2) of Cabinet Decision No. 34 of 2025, of each of the following:

  1. The Qualifying Investment Fund or the Real Estate Investment Trust, as the case may be.

  2. Any Exempt Person under paragraphs (f), (h) and (i) of Article 4(1) of the Corporate Tax Law and wholly directly or indirectly owned and controlled by the Qualifying Investment Fund or the Real Estate Investment Fund.

• "Ownership Interest" – Rights and interests of any kind directly held by the investor in a Qualifying Investment Fund, a Real Estate Investment Trust or a Qualifying Limited Partnership.

• "Immovable Property" – Means any of the following:

  1. Any area of land over which rights or interests or services can be created.

  2. Any building, structure or engineering work attached to the land permanently or attached to the seabed.

  3. Any fixture or equipment which makes up a permanent part of the land or is permanently attached to the building, structure or engineering work or attached to the seabed.