The UAE’s Federal Tax Authority (FTA) has recently issued a public clarification regarding the corporate tax treatment of investors in Real Estate Investment Trusts (REITs) that qualify as exempt funds under UAE law. This move aims to provide greater transparency ahead of the corporate tax rollout starting January 1, 2025.

Key Takeaways for REIT Investors

1. Taxation on Immovable Property Income

Starting from tax periods commencing on or after January 1, 2025, both resident and non-resident legal entities investing in exempt REITs will be taxed on 80% of the REIT’s UAE immovable property income, on a pro-rata basis.

2. Conditions for Tax Exemption

Investors can avoid this tax if the REIT distributes its property income within nine months of the financial year’s end and the investor no longer holds any ownership interest at the time of distribution.

3. Investor’s Legal Ownership

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.

Compliance Obligations

The FTA’s clarification outlines several responsibilities for both REITs and their investors:

• Profit Distributions: Investors must be aware of how profit distributions from the REIT are treated for tax purposes.
• Investment-Related Expenses: Expenses incurred by the investor in relation to their investment in the REIT are deductible, subject to the provisions of the UAE corporate tax law.
• Disposal of Investments: Gains or losses from the disposal of REIT investments may be exempt if certain conditions are met.
• Management Fees: Investment managers are subject to UAE corporate tax on arm’s length management fees.
• Information Provision: REITs are obligated to provide investors with necessary information to calculate their taxable income.
• Tax Agent Appointment: Non-resident investors can appoint a tax agent to assist in fulfilling their tax obligations.

Implications for Investors

This clarification provides much-needed guidance for investors in REITs, ensuring they understand their tax obligations under the new corporate tax regime. By outlining the conditions under which tax exemptions apply and detailing compliance requirements, the FTA aims to facilitate a smooth transition for investors and maintain the UAE’s attractiveness as a destination for real estate investment.

For more detailed information, investors are encouraged to consult the full clarification issued by the FTA and seek professional tax advice to ensure compliance with the new regulations.