Investment Funds and Investment Manager as per UAE CT Law
Investment Funds and Investment Managers
Investment funds act as groups that collect money from investors for the purpose of making investments. Each investment fund collects a pool of funds from its investors. This pool is used for investing in different types of assets or businesses. The investment fund can have a structure like a joint liability company, a limited liability company, a public joint stock company, or a private joint stock company. Sometimes, the fund uses an unincorporated partnership structure or acts as an investment trust for managing the funds.
The main goal for the investors is to earn the highest returns on the money they put into the fund. They want their capital or assets to grow with time. Usually, the investment fund collects money from several people, invests that money in businesses, and tries to get good profits and returns for all investors.
An investment manager is a person who makes the decisions for the fund. The fund hires this manager to use their skills for managing and growing the investments. The manager follows the rules given in the agreement and uses the investment policy for making decisions. The investment manager gets paid a management fee for their work.
The CT Law and the Investment Funds
The UAE Corporate Tax (CT) law aims to treat every investor in a fair way. The law tries to make sure all investors are on a level playing field, whether they invest directly or through investment funds. The UAE CT law treats investors of funds the same as those who invest on their own, making the process fair and neutral.
Under the CT law, investment funds with an unincorporated partnership structure can be treated as “transparent.” This means the tax law looks through the fund and taxes the investors directly, not the fund itself. But if the fund does not have an unincorporated partnership structure, it can be called a “qualifying investment fund.” These funds can be exempt from corporate tax if they meet certain rules. The tax then moves from the fund to the investors, so only the investors pay the tax, not the fund.
Bullet Points on Investment Funds:
- Investment funds can have many different legal structures.
- The main goal is to invest pooled money for profit.
- An investment manager makes key decisions for the fund.
- Some funds are transparent under CT law, others can get tax exemptions.
Corporate Tax Impact on Investment Funds
The effect of the corporate tax law depends on how the investment fund is set up. There are three main ways an investment fund might be structured under the UAE CT law.
Investment Funds that are Resident Persons
Some investment funds are “resident persons” under the law. These funds will be subject to UAE corporate tax rules. If a resident fund meets the rules for a “qualifying investment fund,” it can register as a taxable entity with the Federal Tax Authority (FTA) and apply for a CT exemption. When a fund becomes a qualifying investment fund, it doesn’t have to pay CT. Instead, the investors will be taxed on their share of the fund’s net income according to Article 20 of the CT law.
Investment Funds that are Unincorporated Partnerships
If an investment fund is structured as an unincorporated partnership, the law treats it as transparent. The unincorporated partnership does not pay tax itself, but the income passes through to the investors. Investors then pay tax on their share of the partnership’s income. Sometimes, investors can apply to the FTA to treat the partnership as a separate taxable person. This choice can help the investors keep their personal income and expenses separate from the partnership’s accounts, unless the partnership itself becomes a qualifying investment fund.
Investment Funds that are Non-Residents
A non-resident investment fund will have to pay UAE corporate tax if it has:
- A permanent establishment in the UAE (tax is on the income from the UAE branch),
- Any income from sources in the UAE (such income may face a 0% withholding tax),
- Any “nexus” in the UAE, as described in Cabinet Decision No. 56 of 2023.
Corporate Tax Impact on Investment Managers
The investment manager gets paid for their services, like managing investments or offering advice. If the investment manager is a UAE resident, the fee is included in their taxable income under CT law. If the fee comes from a qualifying investment fund, it still counts as taxable income for the manager, just like any other business income.
If the investment manager is a non-resident, certain rules decide if they have to pay UAE CT. If they have a permanent establishment in the UAE, their income related to that establishment is taxed. If they only have state-sourced income, it is subject to a 0% withholding tax for now.
How Mubarak Al Ketbi (MAK) Auditing Can Help You
When it comes to corporate tax rules for investment funds in the UAE, you shouldn’t let the grass grow under your feet. Mubarak Al Ketbi (MAK) Auditing stands ready to guide you with expert advice, clear guidance, and professional support.
- Get step-by-step help on registering your investment fund.
- Receive expert tax advice for investment managers and investors.
- Benefit from transparent processes and timely support.
- Our experienced team explains each step in easy language.
For more information, visit our office at Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
Or contact/WhatsApp us on: +971 50 276 2132
