FTA Clarifies Corporate Tax Exemptions For Investors In Real Estate Investment Trusts

The Federal Tax Authority (FTA) has released a new public clarification concerning Corporate Tax for investors in Real Estate Investment Trusts (REITs) that qualify as exempt funds. This clarification provides detailed guidance on the tax treatment of these investors, including their income subject to corporation tax, the relevant tax period, and compliance obligations for both REITs and their investors.

For tax periods starting from 1st January 2025, legal persons, whether resident or non-resident, investing in a REIT exempt from corporate tax will face corporate tax on 80% of the immovable property income generated by the REIT. This applies on a pro-rata basis according to the FTA's recent clarification.

The announcement also covers various aspects related to the tax treatment of investors in qualified REITs exempt from corporate tax. These include profit distribution by real estate funds to investors, expenses incurred by investors related to their fund investments, and disposal of investments. Additionally, it addresses fee adjustments for investment managers and the fund's obligation to provide necessary information for calculating taxable income.

If a REIT distributes its immovable property income within nine months after its financial year ends, and an investor has not received dividends due to disposing of their entire ownership interest in the REIT, they will not be liable for corporate tax on the immovable property income realised from the fund. Under UAE Corporate Tax Law, an investor in a REIT is considered the legal owner of their ownership interest in the fund.

The FTA's clarification defines immovable property income as net profit derived from real rights in immovable property located in the UAE. This includes profits from sales, disposals, transfers of rights, direct use, leasing, or any other form of exploitation. Such income must be determined based on the financial statements of the REIT and specific categories of exempt persons fully owned and controlled directly or indirectly by the REIT.

The FTA's detailed explanation aims to enhance awareness among taxpayers about how qualifying REITs exempt from corporation tax are treated. It includes examples to clarify these topics further. The document also outlines appointing a tax agent for non-resident investors in real estate investment funds to assist them with fulfilling their tax obligations.

This comprehensive analysis ensures that all parties involved understand their roles and responsibilities regarding corporate tax compliance when dealing with qualified REITs exempt from taxation.

With inputs from WAM