As the corporate tax landscape in the UAE is evolving, there are continuous updates and improvements to the tax law. Therefore, if you are a business or individual related to the UAE economy, it is essential to stay informed about the updates. Interestingly, the updates are not always about new taxes; however, they also relate to guidelines on claiming tax incentives. For instance, Cabinet Decision 34 of 2025 details conditions to exempt a qualifying investment fund from corporate tax. This blog discusses key takeaways from this decision.
What is a Qualifying Investment Fund (QIF)?
According to the tax law, a qualifying investment fund is:
“Any entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investment fund to enable 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 tax law.”
In general terms, a qualifying investment fund is an investment vehicle that gets an exemption from corporate tax if it meets certain conditions. It pools investments from multiple investors and manages those funds in the form of investments in shares, bonds, and so on.
Exemption Status of QIF under Federal Decree-Law No. 47 of 2023
As per Article 4 of the tax law, a QIF is generally exempt from corporate tax. However, Article 10 lays out the general conditions for an investment fund to get the status of a qualifying investment fund. The fund must apply to the authority to get the exemption status with the following conditions:
a) The investment fund or the investment fund’s manager is subject to the regulatory oversight of a competent authority in the State or a foreign competent authority.
b) Interests in the investment fund are traded on a recognized stock exchange or are marketed and made available sufficiently widely to investors.
c) The major purpose of the investment fund is not to avoid corporate tax.
d) Any other conditions as may be prescribed in a decision issued by the Cabinet at the suggestion of the Minister.
Cabinet Decision No. 34 of 2025 Updates
This decision brings significant changes and updates.
Introduction
The UAE’s Ministry of Finance (MOF) introduced the Cabinet Decision No. 34 of 2025 on 5th April, 2025. The update brings noteworthy changes to the corporate tax regime concerning the qualifying investment funds and qualifying limited partnerships (QLPs).
The decision applies to tax periods commencing on or after 1 January 2025. However, the prevailing Cabinet Decision No. 81 continues to apply to tax periods that commenced before 1st January 2025.
Additional Conditions to Exempt a Qualifying Investment Fund from Corporate Tax
The cabinet decision lists conditions that a taxable person must fulfill to get the exemption status from the tax authority. These conditions are applicable in addition to the ones set out under Article 10 of the tax law (mentioned above). These additional conditions are:
- The primary business of the investment fund must be investment. However, any other business or activity conducted by the fund is incidental or ancillary to the investment business.
- The investors must not have control over the day-to-day management of the investment fund.
- The fund must provide investors with all information, documents, and data necessary for the purposes of calculating their taxable income.
Investor Income from a Qualifying Investment Fund
The previous Cabinet decision demanded that investors must include the proportionate share from the fund in their taxable income. However, the recent update stipulates that a taxable person who invests in a QIF should exclude any profit from the QIF in their taxable income calculation.
There are a few exceptions. The relevant tax period shall be adjusted to include the prorated net profit in the following cases:
a) In a case 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.
b) Where the QIF has more than nine investors, the mentioned ownership interest test is increased to 50%.
The above exceptions do not apply in the first two financial years of a QIF. However, the fund must intend to comply in the third year.
Qualifying Limited Partnership
The Cabinet Decision No. 34 of 2025 also mentions a relatively new term: qualifying limited partnership (QLP). A qualifying limited partnership may apply to the authority to be exempt from corporate tax where all of the following conditions are met:
- The primary business or the business activity of the QLP must be an investment business. However, any other business or activity conducted by the fund is incidental or ancillary to the investment business.
- The QLP does not derive any income from the exploitation of immovable property located in the state.
- The principal purpose of the QLP is not to avoid corporate tax.
Conclusion:
The Cabinet Decision 34 of 2025 brings guidance and clarity on the treatment and investment of qualifying investment funds. Generally, a QIF is an exempt entity for corporate tax purposes if it meets certain conditions. However, this new update brings additional conditions for such entities. Furthermore, as an investor, the income from QIFs should be excluded from the taxable income. However, there are certain exceptions mentioned in our blog. Lastly, this update also introduces qualifying limited partnerships that also need attention. While it balances tax integrity and governance, the new tax update brings key compliance information for entities operating in the UAE.
Creative Zone Tax & Accounting (CZTA)
The complex updates in the tax environment might derail you from your compliance journey. Therefore, it is wise to keep a reasonable tax consultant on board, like CZTA. Our team analyzes each client based on their specific circumstances and recommends the best course of action. Contact us today.
