The UAE has introduced new regulations that will hold non-residents and legal entities accountable for corporate tax payment within its borders. This initiative aims to bolster global competitiveness and alleviate the compliance burden on foreign investors.
The Ministry of Finance unveiled Cabinet Resolution No. 35 of 2025, which clarifies the status of non-resident individuals concerning the Federal Decree-Law No. 47 of 2022, pertaining to corporate and business taxation.
Announced recently, the resolution delineates the scenarios under which a non-resident legal entity, investing in a qualifying investment fund (QIF) or a real estate investment trust (Reit), is considered to have a connection to the UAE, thus becoming liable for taxation.
“The resolution defines when non-resident natural or juridical persons are subject to taxation in the UAE,” remarked David Daly, a partner at the Gulf Tax Accounting Group and columnist for The National.
“The UAE is cautiously handing foreign investors a three-edged sword. Firstly, the certainty brought by this Cabinet decision promotes the acknowledgment of the need to enhance tax revenue. Secondly, it seeks to strike a balance between this requirement and maintaining international competitiveness in a rapidly changing global landscape.
“The third aspect is the ambiguous starting point of this law. If it applies retroactively to June 2023, when the corporate tax was introduced, then prior decisions may have already been made. Conversely, if it takes effect from the issuance date, stakeholders have time to reassess. However, there are concerns about potential future decisions and their implications.”
Commencing from the financial year that begins on or after June 1, 2023, the UAE implemented a federal corporate tax with a standard rate of 9 percent, applying to companies with profits exceeding Dh375,000 ($102,100). Profits below this threshold are taxed at a rate of 0 percent.
Additionally, in 2023, the Ministry of Finance clarified that businesses in the UAE would only incur corporate tax if their annual turnover surpasses Dh1 million, ensuring that merely business-related income faces taxation.
This new regulation elucidates the conditions under which a non-resident juridical investor in a QIF or Reit is deemed to have a tax link in the UAE according to the Federal Decree-Law No. 47 of 2022.
This follows the recent issuance of Cabinet Decision No. 34 of 2025, which focused specifically on QIFs and qualifying limited partnerships.
According to the new decision, a link for a non-resident investor in a QIF can occur in two situations. If the QIF distributes 80 percent or more of its income within nine months of the end of its financial year, the link is established at the time of the distribution. Alternatively, if it fails to meet this distribution requirement, the link arises on the date the ownership interest is obtained.
Similarly, for Reits, a link is created either upon the distribution of 80 percent or more of income within the same nine-month timeframe or when the ownership acquisition occurs if the Reit does not meet the distribution requirement.
Outside of these instances, a non-resident legal entity investing in a QIF and/or Reit will not constitute a taxable presence in the UAE, according to the law.
Dhruv Tanna, associate vice president at PhillipCapital, an investment and wealth management firm based in DIFC, noted that this decision brings essential clarity to non-resident investors involved in QIFs and Reits regarding their tax obligations in the UAE.
“By specifying the circumstances that create a nexus, this resolution differentiates between passive, diversified investments and those concentrating on UAE real estate or lacking adequate distribution or ownership diversity,” he explained.
“Events like failing to distribute 80 percent of income within nine months or not meeting diversity standards act as practical indicators of when a non-resident investor’s involvement is significant enough to attract tax treatment similar to a local presence.”
Mr. Tanna emphasized that this approach aligns with international economic substance principles and reflects the UAE’s attempts to remain competitive while adhering to global tax transparency norms.
It provides reassurance that compliant investment structures, especially those aimed at true portfolio diversification, will not inadvertently fall under the corporate tax regime, he added.
“Moreover, the decision minimizes confusion regarding tax liability timelines by clearly linking nexus creation to either the date of dividend distribution or the ownership acquisition date, based on compliance status,” Mr. Tanna concluded. “Overall, Cabinet Decision No. 35 reinforces the UAE’s dedication to balancing fiscal accountability while maintaining its appeal as an enticing, low-barrier investment destination, particularly for institutional investors seeking certainty and regulatory robustness.”