The UAE Ministry of Finance (‘MoF’) has introduced significant amendments to the Cabinet Decision (‘CD’) on Qualifying Investment Funds (‘QIF’) and the determination of a Non-resident’s Nexus in the UAE. These amendments are encapsulated in Cabinet Decision No. 34 of 2025 and Cabinet Decision No. 35 of 2025 and will be effective from 01 January 2025.

These amendments aim to provide relief to QIF investors and limited partnerships and offer clearer guidance on the formation of Nexus in the UAE for non-resident investors.

Updated decisions include the following:

Cabinet Decision No. 34 of 2025

Below is the comparative table of changes introduced by the new decision [CD No. 34 of 2025] to the earlier CD [CD No. 81 of 2023]:
 

Sr. No.	Particulars	CD No. 81 of 2023	CD No. 34 of 2025	BDO Comments
Conditions to exempt a QIF
1	Regulatory Oversight Condition[1]	ü	ü	Condition retained to make it clearer that QIF status is available to the funds legally established in the UAE
2	Fund Ownership Condition1	ü	ü	Condition retained
3	Main Purpose Condition1	ü	ü	Condition retained
4	Investment Business Condition	ü	ü	Condition retained
5	Diversity of Ownership Condition[2]	ü	Î	This condition has been moved from one of the conditions to claim QIF to a condition for taxation of investor’s income
6	Investment Manager Condition	ü	Î	This condition has been relaxed
7	Independence Condition	ü	ü	Condition retained
8	Make available Information	Î	ü	Condition introducing additional obligations where a QIF is now required to provide its investors with all information, documents and data necessary for the purposes of calculating their Taxable Income adjusted pursuant to this decision
Investor Income
1	Diversity of Ownership Condition2	Î	ü	This condition has been moved from one of the conditions to claim QIF to a condition for taxation of investor’s income. The decision provides for taxation of prorated net profits for investors where diversity of ownership requirements is not met. Further, the decision extends the diversity of ownership beyond mere shareholding to include voting rights, control over the composition of the board, a right to profits, and significant influence.
2	Initial Year Exception	Î	ü	Condition introducing further relaxation beyond initially available 2 financial years (‘FY’) allowed to meet the diversity of ownership requirements in situations where the reason for not meeting the diversity is outside the control of QIF or its investors for not more than 90 days during a FY or in case of liquidation of the QIF.
Additional conditions to exempt a REIT
1	Minimum Real Estate assets value condition	ü	ü	Condition further clarifies that the value of real estate assets would also include the real estate assets under the management or ownership of exempt persons wholly owned and controlled by the REIT.
2	Restriction on REIT and its related parties/ connected persons	Î	ü	Condition further introduces that where a REIT applies for exemption by meeting the criteria of floating 20% of shares on a Recognised Stock Exchange, these floated shares should not be subscribed/ purchased by the REIT or its related parties/ connected persons.
3	Make available Information	Î	ü	Condition further introduces that a REIT is now required to provide its investors with all information, documents and data necessary for the purposes of calculating their Taxable Income adjusted under this decision

The CD also introduces new provisions pertaining to limited partnerships and taxability of immovable property in the case of QIF and REIT. We have summarised below the key provisions:

Qualifying Limited Partnership

The decision introduces a comprehensive framework for granting a Qualifying Limited Partnership ('QLP') an exemption from corporate tax.

• Conditions to exempt QLP from Corporate Tax: A QLP can make an application for exemption on satisfaction of all the following conditions:

1. Has the sole purpose of collective investment
2. Is a legal person established under a legal framework that explicitly allowed for the establishment of such partnerships on or before 1 June 2023
3. Conducts Investment Business; any other business activities to not exceed 5% of Total Revenue
4. Not earning income from UAE immovable property
5. Not formed to avoid Corporate Tax

• The decision extends this exemption to legal persons wholly owned and controlled by a QLP upon satisfaction of additional conditions.

Where an exemption is granted to a QLP, the income is taxed at investor level who should include the prorated net income in proportion to ownership interest in their taxable incomes (subject to other exemptions)

• Block-in period – Where application is not made or conditions are failed by QLP, then exemption shall not be allowed to be claimed for the current and subsequent 4 tax periods.

Income from Immovable Property earned by QIF and REIT

• Taxation of Immovable Property Income - The decision provides for taxation of immovable property income in the hands of the investor (being a legal person) to the extent of 80% of such income and prorated to the ownership interest held by such investor. 
• Distribution of Immovable Property Income – The decision clarifies the cases where an exception to the general principle of inclusion of immovable property income should apply, viz.:

1. The QIF distributes 80% or more of the immovable property income within 9 months of the end of FY, and the investor does not receive the distribution due to disposal of ownership interest, the inclusion of immovable property income for that FY should not be made proportionate to the disposal.
2. Participation exemption is not available to an investor on disposal of ownership interests in QIF, the undistributed immovable property income should be excluded to the extent of earlier inclusions and taxable gain on disposal.

• Calculation of prorated immovable property income – The decision clarifies that the prorate/ proportion for inclusion of immovable property income should be based on the following factors:

1. Investor’s Tax Period
2. The period in which QIF distributes 80% or more of such income
3. Holding a period of ownership interest in case of no distribution

The decision further provides guidance on deduction and subsequent inclusion of depreciation on investment property held at fair value by a QIF to the investor’s income.

Cabinet Decision No. 35 of 2025

Corporate Tax is imposed on juridical Non-Resident Persons who have a nexus in the UAE. A juridical Non-Resident Person will be considered to have a nexus in the UAE if it derives income from any Immovable Property in the UAE. The key changes introduced by the decision are as follows:

Income from QIF to create Nexus –The decision includes the income adjusted for a Non-resident investor as per Cabinet Decision No. 34 of 2025 under the scope of Nexus in UAE.

Timing of Nexus creation – The decision further clarifies that the income from immovable property earned by QIF or REIT, which is adjusted in the income of a Non-resident investor as mentioned above, should create nexus on the date of –

1. Dividend distribution where investment fund distributes 80% or more of immovable property income within 9 months of end of FY; or
2. date of acquisition of ownership interest in the investment fund in other case

Way forward

With vision of fostering investment funds business and safeguarding the position of investors, the amendments provide significant relief to taxing profits of funds and investors, while casting additional responsibilities on the fund managers. Therefore, it is essential to assess the impact of these changes on operations, taxability, and compliance, considering the effective date of these changes.

We expect that the Federal Tax Authority's guidance on this topic will also be updated, which will help address some of the questions that fund managers and investors may have.

If you need further advice or assistance regarding the above decisions, feel free to contact our Tax Experts.

Disclaimer

The information provided in this article is of a general nature and may not address the specific circumstances of your business. It is recommended to seek professional advice to understand the full implications of the above exemptions on your operations. BDO assumes no responsibility for decisions made based on the information provided in this article.