UAE Clarifies Corporate Tax on Exempted-REITs: Investors to Be Taxed on 80% of Property Income from 2025, Subject to Conditions

The UAE’s Federal Tax Authority ( FTA ) has issued a public clarification stating the corporate tax treatment for investors in Real Estate Investment Trusts ( REITs ) that are exempt from corporate tax as Qualifying Investment Funds ( QIF ). 80% of the prorated immovable property income produced by the REIT will be liable to corporate tax for resident and non-resident juridical persons investing in such exempt REITs, starting with tax periods starting on or after January 1, 2025. While distributing a portion of the REIT's profits to its investors for tax reasons, this provision guarantees that REITs themselves maintain their tax-exempt status. The clarification states that “A REIT that meets the conditions of Article 10(1) of the Corporate Tax Law1 and Article 4(1) of Cabinet Decision No. 34 of 2025 can make an application to the FTA to be exempt from Corporate Tax as a Qualifying Investment Fund. Where a REIT is exempt from Corporate Tax, the Taxable Income of a juridical person that is an investor in the REIT shall be adjusted to include 80% of the prorated Immovable Property Income of the REIT. However, if the REIT makes a distribution within 9 months from the end of its Financial Year and the investor did not receive the dividend distribution due to disposal of its entire Ownership Interest in the REIT, the investor will not be subject to Corporate Tax on the Immovable Property Income of the REIT.” Discover How Companies Manage Business Processes to Benefit Society! - Click Here Also Read: Passenger Trying to Smuggle Hybrid Ganja to UAE Caught at Kochi Airport, Customs Seizes Rs. 5.5 Crore Worth of Contraband However, the FTA provides a key exemption: if the REIT distributes the relevant income within nine months of the end of its financial year, and an investor no longer holds any ownership interest in the REIT at the time of the distribution (having fully disposed of it), that former investor will not be liable to pay corporate tax on the REIT’s immovable property income. This exemption prevents taxation on income the investor did not ultimately benefit from due to divestment before distribution. For the purposes of corporate tax, the legal owner of the REIT interest is treated as the investor. This includes custodians or investment managers who legally hold units on behalf of a pool of underlying investors. In such cases, the tax obligations rest with the legal titleholder, not the beneficial owners. Also read: RBI Announces Relaxations for Exports Via Warehouses in ‘Bharat Mart’, UAE The clarification also highlights that this tax adjustment applies only to juridical persons, and not to natural persons, even if the investment is part of their business activities. The taxable income for such investors must be adjusted to reflect 80% of the net realized profit from UAE immovable property held by the REIT, prorated according to their shareholding and the holding period. The REIT is also required to provide investors with the necessary financial data to facilitate accurate tax reporting. Discover How Companies Manage Business Processes to Benefit Society! - Click Here Furthermore, the FTA distinguishes between distributing REITs those that pay out at least 80% of their immovable property income within the 9-month window and non-distributing REITs. In the former, tax liability is tied to actual distributions received. In the latter, income attribution occurs regardless of whether distributions are made, based on ownership and duration of holding. The purpose of this public clarification issued by the UAE FTA is to clarify the following: The income that will be taxed in the hands of juridical persons that are investors in a REIT. The relevant Tax Period in which the income shall be taxed for such investors. The compliance obligations of the REIT and the investors and other related matters. Also read: ‘Shift to UAE for 183 Days’: Kotak MD Warns of Tax Loophole Following ITAT Ruling on NRI Mutual Fund Capital Gains Meaning of Immovable property Income as Provided in the Clarification According to the FTA’s clarification, an immovable property income is “the net realised profit derived from the right in rem, sale, disposal, assignment of rights therein, direct use, letting, including subletting and any other form of exploitation of Immovable Property located in the UAE.” It must be calculated based on the REIT’s financial statements and those of any Exempt Person under Article 4(1)(f), (h), or (i) of the Corporate Tax Law that is wholly owned and controlled by the REIT. Discover How Companies Manage Business Processes to Benefit Society! - Click Here The unrealised gains or losses, such as fair value adjustments or impairments, are excluded until realised. The income is determined after deducting directly related expenses and a proportional share of the REIT’s general expenses, in accordance with applicable accounting standards. Additionally, investors may optionally adjust the income for tax depreciation on investment properties, as per the Ministerial decision on depreciation under the Corporate Tax Law. Notably, only net realised profits are considered losses are excluded. Also read: India-UAE DTAA Prevails: ITAT Allows 100% Deduction for Head Office Expenses, Bypasses Section 44C Restrictions Investor in a REIT For the purposes of the Corporate Tax Law, an investor in a REIT is the legal owner of the Ownership Interest in the REIT. Discover How Companies Manage Business Processes to Benefit Society! - Click Here When an investment manager or custodian, whether based in the UAE or abroad, holds legal ownership of REIT units on behalf of a pool of investors, they are treated as the legal investor for corporate tax purposes. Also read: Delhi HC Flags Pattern of Misusing Writs to Escape GST Fraud Penalties, Slaps ₹1 Lakh Cost Profit distribution by a REIT to investors To avoid double taxation, any profit distributions received by an investor that is a Taxable Person from the REIT shall be excluded from its Taxable Income given the income would have already been attributed to the investor. Discover How Companies Manage Business Processes to Benefit Society! - Click Here The expenses incurred in relation to an investor’s investment in a REIT are deductible subject to the provisions of Chapter Nine of the Corporate Tax Law. Also read: Consumer Protection Authority issues Notices to E-Com Platforms including Amazon, Flipkart Over Listing and Sale of Unlicensed Walkie Talkies Disposal of Investment in a REIT When the investor disposes of its Ownership Interest in any REIT, any gain or loss on such disposal shall be Exempt Income if the conditions of Participation Exemption are met. However, if the conditions of Participation Exemption are not met, the gain on disposal for the investor shall be adjusted to exclude any undistributed income that was included in the Taxable Income of the investor in the Tax Period of the disposal or any previous Tax Periods. However, such adjustment cannot result in a disposal loss. This adjustment in effect reduces the taxable gain on disposal to ensure that undistributed profits previously taxed in the hands of the investor are not taxed again if the value of the Ownership Interests disposed of effectively includes those profits. Discover How Companies Manage Business Processes to Benefit Society! - Click Here When the investor that is a Non-Resident Person, disposes of its Ownership Interest in a REIT, the income from such disposal is not income attributable to the nexus of the investor under Article 12(3)(c) of the Corporate Tax Law and therefore will not be subject to tax and the application of Participation Exemption rules does not need to be considered in this case. Also read: Case Digest on GST Notices via Common Portal: Important Rulings by Different High Courts Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

UAE Clarifies Corporate Tax on Exempted-REITs: Investors to Be Taxed on 80% of Property Income from 2025, Subject to Conditions

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UAE Clarifies Corporate Tax on Exempted-REITs: Investors to Be Taxed on 80% of Property Income from 2025, Subject to Conditions

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