UAE Tax Rules Update for Non-Residents and Foreign Investors

UAE updated tax rules for non-residents and foreign investors, under Cabinet Decision No. 35 of 2025, outlining new tax nexus rules for non-resident investors in QIFs and REITs, replacing Decision No. 56 of 2023.

By Sudhanshu Singh

On March 28, 2025, the UAE Ministry of Finance issued Cabinet Decision No. 35 of 2025, redefining when a non-resident juridical investor is considered to have a taxable presence, or nexus, in the country. This new decision replaces Cabinet Decision No. 56 of 2023, aligning tax treatment with the latest structural reforms in the UAE’s corporate tax regime under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

The decision outlines the conditions under which investments in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs) create a tax nexus for non-residents. It is issued alongside Cabinet Decision No. 34 of 2025, which details the classification of QIFs and Qualifying Limited Partnerships (QLPs).

This policy clarification arrives at a time of elevated global uncertainty. The new wave of trade tariffs, including a baseline10 percent import tariff on the UAE, have raised concerns over supply chain disruptions and increased volatility in global investment flows. As advanced economies reassess cross-border tax exposure and developing markets navigate shifting capital allocations, the UAE’s targeted regulatory updates signal its intent to remain a tax-efficient and reliable hub for foreign investors amid broader international economic turbulence.

Nexus conditions for non-resident investors

Under the new tax regime, Qualifying Investment Funds (QIFs) are required to meet several conditions to retain their eligibility for zero percent corporate tax. One key requirement is that the fund must hold less than 10 percent of its total assets in real estate.

Ownership concentration is also regulated: for funds with fewer than 10 investors, no single investor may hold 30 percent or more of the fund. If the fund has more than 10 investors, then the threshold is raised to less than 50 percent per individual investor. In cases where a fund breaches the ownership condition unintentionally, no nexus is created during the first two years. However, any subsequent breach must be corrected within a 90-day grace period to avoid triggering a taxable nexus in the UAE.

Under Cabinet Decision No. 35 of 2025, a nexus is created for a non-resident juridical investor in a QIF or REIT under specific circumstances related to income distribution or ownership thresholds.

For QIFs, a non-resident juridical investor will have a nexus in the UAE if:

• The fund breaches the real estate threshold and fails to meet ownership diversity conditions during the relevant tax period;
• The fund distributes less than 80 percent of its income within nine months of its financial year-end. In this case, the nexus arises on the date of acquiring the ownership interest; and
• If the fund does distribute at least 80 percent of income, the nexus arises on the date of dividend distribution.

For REITs, similar rules apply. A nexus arises:

• On the date of dividend distribution, if at least 80 percent of income is distributed within nine months from the year-end; and
• On the date of acquiring ownership, if less than 80 percent is distributed within the required timeframe.

In all other cases, non-resident juridical investors in QIFs or REITs will not be considered to have a taxable presence in the UAE.

Policy intent and investor impact

The primary objective of Cabinet Decision No. 35 of 2025 is to bring clarity to the corporate tax obligations of non-resident investors while maintaining the UAE’s attractiveness as a global investment destination. By defining clear conditions for tax presence, the government aims to reduce ambiguity and compliance risk.

The rules ensure that tax obligations arise only when investors hold interests in funds that do not adhere to income distribution or ownership diversification standards. This design encourages funds to meet these benchmarks while protecting passive investors from unintended tax exposure.

Investors who meet the conditions for exemption, namely those in QIFs and REITs that comply with distribution thresholds, will continue to benefit from the UAE’s zero percent tax on passive investment income.

Cabinet Decision No. 35 of 2025 complements earlier tax regulations, particularly:

• Cabinet Decision No. 34 of 2025, which clarified what constitutes a Qualifying Investment Fund or Qualifying Limited Partnership under Federal Decree-Law No. 47 of 2022;
• Cabinet Decision No. 56 of 2023, which had earlier defined non-resident nexus rules but has now been replaced entirely by the updated decision.

In brief

Cabinet Decision No. 35 of 2025 provides much-needed clarity for non-resident juridical investors in UAE-based funds. It narrows the circumstances under which such investors will be considered to have a taxable presence in the UAE, thereby streamlining compliance requirements.

Investors in QIFs and REITs who ensure compliance with income distribution and ownership diversity standards can continue to invest with minimal tax exposure. The updated rules reinforce the UAE’s commitment to transparency and economic competitiveness without burdening passive investment flows.

As the UAE’s corporate tax system matures, these targeted updates will help maintain investor confidence and regulatory certainty across cross-border fund structures.

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