UAE Corporate Tax Guide 2024 on Investment Funds:
What are investment funds?
Investment funds invest funds received from investors on a collective basis in accordance with a defined investment policy. In return, investors share in the profits of the investment fund.
Generally investment funds are of two types:
1. Public funds
2. Private funds
Collective Investment Vehicular Types:
An investment fund could be hosted by:
1. Joint Liability Companies,
2. Limited Partnership Companies,
3. Limited Liability Companies,
4. Public Joint Stock Companies
5. Private Joint Stock Companies
6. Unincorporated Partnerships
7. Investment Trusts
8. Corporate Entity Types That Are Available In A Free Zone.
9. Other Legal Vehicles Incorporated Outside The UAE.
Types of investments undertaken:
Investment funds commonly deal in:
1. Marketable Security Funds,
2. Mutual Funds,
3. Exchange-Traded Funds,
4. Money-Market Funds,
5. Hedge Funds,
6. Private Equity Funds,
7. Real Estate Funds.
Investment Manager:
An investment fund may appoint an investment manager who makes investment decisions on behalf of the investment fund.
The investment manager can receive income from its investment management activities through charging a pre-agreed management fee (for example, equivalent to a percentage of capital committed, capital invested or assets under management), a performance fee (for example, a portion of excess returns), or a co-investment (such as a carried interest investment).
Investment Advisor:
Sometimes, all or a portion of those activities will be carried out by an investment advisor or a general partner. An investment manager or an investment advisor may also subcontract a portion of their activities to other group entities, usually called “investment subadvisors”.
Custodian:
Some funds may also appoint a custodian, general partner or trustee, who holds certain assets on behalf of the fund or the investors or performs certain administrative tasks.
Sponsor:
An investment fund could also have a dedicated sponsor which could be responsible for establishing and overseeing the fund.
Why Qualifying Investment Funds are Exempt from UAE Corporate Tax?
The Corporate Tax Law seeks to ensure that investors of an investment fund are in a similar Corporate Tax position as if they had invested directly in the underlying assets of the fund. If they had invested directly, all the income would have been passive income and, hence, out of the scope of UAE Corporate Tax.
International Tax Position on Collective Investment Vehicles:
It is internationally common for a tax system to provide for neutrality between direct investments and investment through collective investment vehicles by not subjecting the income of such entities to taxation or burdensome compliance obligations.
