The UAE has recently clarified tax rules for real estate investors, shedding light on how taxation applies to those involved in Real Estate Investment Trusts (REITs). This guidance aims to assist both resident and non-resident investors in navigating the complexities of corporate tax obligations while ensuring compliance with national regulations. Understanding these updates is crucial for investors looking to maximize their returns in the thriving UAE real estate market.
The Federal Tax Authority (FTA) has released a detailed clarification regarding the corporate tax implications for investors in REITs classified as Qualified Funds, which are exempt from corporate tax. This important announcement outlines key aspects of the tax treatment applicable to these investors.
Key Aspects of Tax Clarification
The FTA’s clarification offers a thorough examination of several critical topics, including:
- The income generated by legal entities invested in REITs subject to corporate tax
- The applicable tax period for these investors
- The compliance obligations for both the REIT and its investors
In addition, the clarification provides illustrative examples aimed at enhancing taxpayer understanding of their responsibilities regarding the tax treatment of investors in qualifying REITs exempt from corporate tax.
Full details of the clarification can be found here.
Tax Treatment Specifics for Qualified REIT Investors
The announcement also elaborates on the tax treatment matters for investors involved in qualified REITs exempt from corporate tax. Key elements include:
- The profit distribution by a real estate fund to its investors
- The costs incurred by investors in relation to their investments
- The process involved in disposing of these investments
- Adjustments related to fees assigned to investment management
- The obligation of the fund to provide requisite information for investors to calculate taxable income
- The appointment of a tax agent to assist non-resident investors in fulfilling their tax obligations
According to the FTA, starting from tax periods that begin on or after January 1, 2025, both resident and non-resident legal entities investing in a REIT exempt from corporate tax will be subject to corporate tax on a pro-rata basis for 80% of the immovable property income generated by the REIT.
If a REIT distributes its immovable property income within nine months following the end of its financial year and an investor has not received dividends due to disposing of their entire ownership interest in the REIT, that investor will not face corporate tax on the immovable property income realized from the fund.
Understanding Investment Ownership
For the purposes of UAE Corporate Tax Law, an investor in a REIT is recognized as the legal owner of their interest in the fund. The clarification specifies that income derived from immovable property includes net profits accrued from real rights associated with immovable property located in the UAE, as well as income from its sale, leasing, and other forms of exploitation.
This income must be assessed based on the financial statements of the REIT, considering specific categories of exempt persons, where such income is fully owned and directly or indirectly controlled by the REIT in the UAE.