UAE Tax Updates (April, 2025)

Cabinet Decision No. 34 of 2025 – Qualifying Investment Funds & Limited Partnerships Exemption

Effective Date:

April 1, 2025 – Applicable to Tax Periods commencing on or after the 1^st of January 2025

Details:

This decision sets out the detailed criteria for qualifying Investment Funds, Real Estate Investment Trusts ("REITs"), and Qualifying Limited Partnerships to be granted an exemption from Corporate Tax, ensuring that only entities meeting the specified thresholds and operational requirements benefit from this status.

Investment Fund Exemption:

1. Eligible Investment Funds must have their principal business activity focused on Investment Business, with any additional activities strictly ancillary or incidental;
2. Investors are not permitted to exercise day-to-day management control over the fund;
3. In addition, the fund must supply investors with comprehensive documentation and data needed to determine and adjust their Taxable Income accurately.

Real Estate Investment Trust Conditions:

1. On the other hand, to be eligible for exemption under the Corporate Tax law, REITs must manage or own immovable property with a value exceeding AED 100 million;
2. Additional criteria include meeting requirements related to share flotation on a Recognised Stock Exchange or alternative measures as approved by the Minister.

Qualifying Limited Partnership:

1. Limited Partnerships seeking Corporate Tax exemption must conduct their main business solely as Investment Business. Any other activity must be of an ancillary or incidental nature;
2. They must not derive income from the direct exploitation of immovable property in the UAE, and tax avoidance cannot be the principal purpose of their formation.

Impact:

The Decision provides clear eligibility criteria and operational requirements that streamline the tax treatment for Investment Funds including REITs, and Limited Partnerships. It enhances predictability in Corporate Tax obligations and supports effective tax planning for corporations operating under these frameworks.

Compliance Tips:

1. Review and confirm that your entity's activities are predominantly investment-based and that any ancillary operations remain within the permitted limits.
2. Ensure that internal systems accurately capture all necessary data to support the calculation of adjusted Taxable Income.
3. Regularly assess and document compliance with the REIT and Limited Partnership thresholds to retain the Corporate Tax exemption status.

Applicability:

This update applies to entities operating in the Investment Business sector, including those engaged with Investment Funds, REITs, and Limited Partnerships that meet the outlined conditions.

Corporate Tax Guide – Interest Deduction Limitation Rules (CTGIDL1)

Details:

This guide provides detailed clarification on the interpretation and application of the Interest Deduction Limitation Rules under the Corporate Tax Law. It explains which financing costs qualify as deductible Interest, describes how to differentiate between relevant and non-relevant charges, and outlines the methods for applying both the Specific Interest Deduction Limitation Rule and the General Interest Deduction Limitation Rule.

Definition and Scope:

"Interest" is defined by the Corporate Tax Law broadly to include any amounts incurred for the use of money or credit, encompassing related costs such as discounts, premiums, and profit elements on Islamic Financial Instruments. The guide explains the criteria that distinguish genuine Interest expenditure from other financial charges that are not subject to the limitations.

Deduction Limitation Framework:

The document clearly separates the methodology for the Specific Interest Deduction Limitation Rule from that of the General Interest Deduction Limitation Rule:

1. Specific Interest Deduction Limitation Rule: Focuses on particular transactions and thresholds applicable to defined financing arrangements. Under the Specific Interest Deduction Limitation Rule, the allowable deduction for interest expense is tied directly to the cash flows generated by the specific asset or project.
2. General Interest Deduction Limitation Rule: Establishes an overall framework for calculating Net Interest Expenditure and adjusted EBITDA, ensuring that only the appropriate financing costs are deductible. According to the General Interest Deduction Limitation Rule, the overall deductible interest is capped at a percentage of the company's adjusted EBITDA.

Step-by-step methodologies, along with practical examples for transactions such as repos, securities lending, and various lease arrangements, are provided to aid Taxable Persons in accurately applying these rules.

Impact:

The guide aims to enable Taxable Persons to correctly identify and calculate allowable Interest expenditure. This clarity supports more accurate Corporate Tax computations and improved financial planning.

Compliance Tips:

1. Ensure that all financing arrangements are properly documented and that the corresponding Interest expenditure is clearly segregated in your accounting records.
2. Regularly verify that your calculation methodologies adhere to both the Specific and General Interest Deduction Limitation Rules outlined in this guide.
3. Consider consulting with tax professionals to review complex instruments and transactions to maintain full compliance.

Applicability:

This guidance applies to all Taxable Persons in the UAE who incur Interest expenditure for financing activities, except for those who are part of tax groups.

Cabinet Decision No. 35 of 2025 – Nexus Determination for Non-Resident Persons

Effective Date:

April 10, 2025 – This Decision applies to Tax Periods commencing on or after January 1, 2025.

Details:

Cabinet Decision No. 35 of 2025 exclusively sets out the criteria to determine when a non-resident person (or entity) is deemed to have a nexus in the State for Corporate Tax purposes under Federal Decree-Law No. 47 of 2022. By clearly defining the circumstances, such as income from immovable property or adjustments made under related decisions, this measure ensures that non-resident entities with taxable connections register with the Authority.

Nexus Determination

The Decision sets out the conditions under which a non-resident may be deemed to have nexus in the State. These include, for example, situations where income is derived from immovable property or where income adjustments under related decisions have been triggered.

The criteria are designed to capture a broad range of activities, including investment activities, to ensure that any foreign entity with significant economic connections to the UAE is subject to registration under the Corporate Tax regime.

Registration Requirement

Non-resident persons meeting the nexus criteria are required to register for Corporate Tax with the Authority.

Impact:

This framework represents a proactive step in ensuring that all relevant non-resident activities are appropriately addressed under the Corporate Tax Law.

Corporations operating internationally should review their cross-border arrangements to determine if additional compliance measures may be required.

Compliance Tips:

1. Review all income streams to identify any that originate from immovable property or are adjusted in accordance with Cabinet Decision No. 34 of 2025.
2. Scrutinize arrangements involving the transfer or disposal of property rights to confirm that they are supported by genuine commercial reasons.
3. Ensure timely registration for Corporate Tax if any of the nexus conditions are met and maintain comprehensive records in case of audit or further review by the Authority.

Applicability:

This Decision applies to all non-resident persons (or foreign-incorporated entities) that, through the activities outlined, have a taxable presence in the State. These entities must comply with the registration requirement, except in cases where they operate as part of an integrated tax group.

Public Clarification – Crypto-Currency Mining (VATP039)

Effective Date:
Effective as of the implementation of Federal Decree-Law No. 8 of 2017 on Value Added Tax and Cabinet Decision No. 52 of 2017 on its Executive Regulation (i.e. from 1 January 2018).

Details:
Scope
– Applies to all crypto-currency mining activities using a proof-of-work mechanism in the UAE.

Tax Treatment

• Mining for own account: Mining carried out by a person for their own account is outside the scope of VAT. The block-reward received is not consideration for a taxable supply.
• Mining on behalf of others: Where a person provides computing power to mine crypto-currency for another party in exchange for a fee, this constitutes a taxable supply of services at the standard 5 % rate (zero-rating may apply if supplied to a non-resident who meets all zero-rating conditions).

Input Tax Recovery

• Non-recoverable where mining is for own account, since no taxable supply is made.
• Recoverable by a registrant to the extent that expenses are incurred for making a taxable supply of mining services to others (subject to holding valid tax invoices and evidence of business purpose).

Legal References
– Federal Decree-Law No. 8 of 2017 on VAT
– Cabinet Decision No. 52 of 2017 (Executive Regulation)
– VAT Public Clarification VATP039

Impact:
Provides certainty that purely recreational or hobby-style mining is VAT-free, while commercial hosting or "hash-power" services must be VAT-registered, charged, and reported. This distinction safeguards miners who simply operate rigs for their own wallets and ensures proper VAT collection on outsourced mining services.

Compliance Tips:

• Confirm whether your mining activity is for your own account or on behalf of others.
• If providing mining services commercially, register for VAT, issue tax invoices for fees, and recover input VAT on related costs.
• Maintain detailed records of computing capacity supplied, fees charged, and all supporting invoices.

Applicability:
All natural or legal persons in the UAE engaging in crypto-currency mining, whether for self-mining or as a service provider to third parties.

Public Clarification – Barter Transactions (VATP042)

Effective Date:
28 April 2025 – Applicable to supplies made on or after this date.

Details:
Scope
– Covers all transactions involving the exchange of goods and/or services for non-monetary consideration in the UAE.

VAT Treatment

• Each party in a barter makes at least one supply to the other; each supply is treated like any cash transaction and may be:
  • Taxable at 5 %, or
  • Zero-rated, if all zero-rating conditions are met, or
  • Exempt, if exemption criteria apply, or
  • Outside the scope, e.g. if the place of supply is outside the UAE.

Valuation of Non-Monetary Consideration
When non-monetary consideration is received, the value of supply equals:

1. Any cash received, plus
2. The market value of the non-monetary part (excluding VAT), determined by:
   • The price freely achieved for a similar supply between unrelated parties in similar UAE conditions on that date; or
   • If unavailable, the price for a similar supply in similar circumstances; or
   • Failing that, the replacement cost of identical goods/services from an unrelated supplier.

Tax-Invoice Requirements
– VAT-registered suppliers must issue and deliver a tax invoice for each supply under the barter, showing: net value of supply, VAT amount, and gross consideration.

Legal References
– Federal Decree-Law No. 8 of 2017 on VAT
– Cabinet Decision No. 52 of 2017 (Executive Regulation)
– VAT Public Clarification VATP042

Impact:
Ensures that barter transactions are subject to the same VAT net as cash sales, prevents tax leakage on in-kind exchanges, and clarifies how to arrive at a taxable value when non-cash payments are involved.

Compliance Tips:

• Identify and value each supply in a barter individually.
• Apply the market-value rules rigorously and document your valuation method.
• Issue compliant tax invoices for every taxable supply, even when no cash changes hands.

Applicability:
Applies to all UAE-resident businesses and VAT-registrants engaging in barter of goods or services, whether entirely in-kind or part cash/part in-kind.