Tax update: What’s new in the UAE? – February 2025

By Feroz Hematally, Head of Tax, Africa, India and Middle East, and Naveen Gone, Manager, Finance and Tax, UAE

In this new monthly update curated by our team of tax and compliance experts, we aim to provide a comprehensive digest of the latest tax and regulatory developments, news and enforcement actions in the United Arab Emirates (UAE). Here are the key takeaways for February.

(For January’s update, please click here.)

UAE corporate tax updates

Corporate tax considerations for investment funds and fund managers

The UAE’s corporate tax framework offers significant reliefs for entities engaged in investment activities, including exemption for qualifying investment funds, participation exemptions, and benefits of qualifying free zones entities. These corporate tax reliefs apply to investment funds, holding entities, investment entities, fund management entities and wealth and investment management entities.

• Exemptions for qualifying investment funds

The UAE corporate tax structure offers tailored exemptions to qualifying investment funds, a strategic move to draw in and maintain robust investment activity. To enjoy these tax exemptions, funds must adhere to specific criteria. These criteria typically involve regulation under an acknowledged financial market authority, a broad investor base, and an assurance that the fund is not primarily held by a singular group of related parties.

• Options for non-qualifying investment funds

Investment funds that do not meet the criteria for qualifying investment funds can explore other avenues like participation exemptions or qualifying free zone benefits, which can provide significant reductions in the corporate tax burden. It is crucial for investment funds to assess their legal form and determine the suitable tax relief applicable to them.

• Tax relief mechanisms for fund managers

Beyond exemptions for funds themselves, the UAE offers additional tax relief mechanisms targeting fund managers. Primarily, these mechanisms include the relief from being considered a permanent establishment for overseas clientele and profiting from qualifying free zone benefits, altogether enhancing the attractiveness of UAE’s investment environment.

Overall, these tax provisions not only bolster the attractiveness of the UAE for investment funds and investment activities but also solidify its standing as a progressive and financially competitive market globally, encouraging a broader spectrum of international investors and strategic fund managers to establish their operations within the region.

UAE domestic minimum top-up tax (DMTT)

The UAE domestic minimum top-up tax (DMTT) has been introduced under Cabinet Decision No. 142 of 2024, effective for financial years commencing on or after 1 January 2025. This tax ensures a minimum effective tax rate of 15% for multinational enterprise (MNE) groups that have a global consolidated revenue of €750 million or more in at least two of the last four fiscal years. The tax applies to the taxable income of all in-scope entities and is levied on 100% of the taxable income.

Clarity on unincorporated partnerships, foreign partnerships and family foundations

Ministry Decision No. 261 of 2024 offers clarity on unincorporated partnerships, foreign partnerships and family foundations. Here are the main points:

• An unincorporated partnership becomes a taxable entity if it submits an application to the Federal Tax Authority (FTA) in this regard and receives approval, unless it qualifies as a juridical entity
• Juridical entities entirely owned and controlled by a family foundation can obtain tax transparency relief, provided they meet specific family foundation conditions
• If a family foundation designates public benefit entities as beneficiaries, transparency benefits are applicable, given that the family foundation’s income is not taxable in the hands of the public benefit entities and is distributed within six months from the tax period’s end
• The term “taxes” related to foreign partnerships as mentioned in the corporate tax law is clarified to mean any tax similar in nature to corporate tax

UAE VAT updates

e-Invoicing

The Ministry of Finance has initiated a public consultation on UAE e-invoicing to collect feedback from stakeholders regarding proposed data requirements. This process aims to ensure transparency and alignment with industry needs. The consultation period remains open until 27 February 2025.

If you have any queries or would like to discuss any of these topics further, please contact us: