The UAE Federal Tax Authority has issued detailed guidance. This guidance clarifies how corporate tax will apply to investors in qualified Real Estate Investment Trusts (REITs). These REITs are exempt from corporate tax.
Beginning with tax periods starting January 1, 2025, both resident and non-resident investors in such REITs will be taxed on 80% of the immovable property income earned by the fund. This calculation will be on a pro-rata basis. This ensures that investors are treated as if they directly own the income-generating assets. The treatment reflects the legal ownership structure under UAE tax law.
However, there’s a key exemption. If the REIT distributes the property income to investors within nine months of the financial year-end and the investor has not received dividends, that investor will not be taxed on the fund’s property income.
The clarification also outlines how tax applies in several scenarios:
- Profit distributions made by the REIT to investors.
- Expenses incurred by the investor tied to their fund holdings.
- Disposal of fund units, which may trigger taxable gains.
- Investment manager fees, which may impact taxable calculations.
- Disclosure obligations, where the fund must give investors relevant income data for tax purposes.
- Tax agent appointments, especially important for non-resident investors, who may require a representative in the UAE to meet compliance needs.
The tax treatment aims to strike a balance between transparency and fairness. It also encourages the real estate sector to remain aligned with the UAE’s new corporate tax framework.
