The UAE Corporate Tax Law provides a special provision for regulated UAE Investment Managers who offer discretionary investment or asset management services to foreign funds and customers. Referred to as the Investment Manager Exemption, this clause enables the UAE Investment Manager to sidestep the establishment of a permanent presence for foreign funds and clients in the UAE, provided specific conditions are satisfied. This means that the foreign funds and customers will not be liable to UAE Corporate Tax due to the services rendered by the UAE Investment Manager⁵. The Investment Manager Exemption is designed to prevent the unintentional creation of permanent establishment for foreign funds and to encourage the UAE as a regional center for asset management.
What Are the Conditions for the Exemption of Investment Manager?
The following are the conditions to avail of Investment Manager Exemption as stated below:
- Licensing and Regulation by Competent Authority: The Investment Manager is required to hold a valid license and adhere to regulatory oversight by a competent authority in the UAE or a recognized foreign jurisdiction as endorsed by the Ministry of Finance.
- Professional Qualifications and Resident Expertise: To meet the stipulations, the Investment Manager must maintain a team of at least three resident investment professionals possessing relevant qualifications and experience.
- Ownership Restrictions and Purposeful Acquisitions: Stringent guidelines dictate that the Investment Manager should refrain from holding any ownership interest in the foreign fund or customer, except when such interest is below 10% and acquired solely for service provision.
- Non-Involvement in Management Decisions: The Investment Manager is explicitly prohibited from exercising control over the day-to-day management or decision-making processes of the foreign fund or customer, including influencing director or manager appointments or removals.
- Risk and Reward Exclusions, Limited to Fees: The Investment Manager is mandated to dissociate from any risk or reward tied to the foreign fund or customer's investment performance, sharing profits or losses only through fees or commissions for services rendered.
- Specialized Service Provision: The Investment Manager is restricted to offering services exclusively related to investment or asset management. Services unrelated to these, such as accounting, legal, tax, or administrative services, are expressly forbidden.
What Are the Benefits of the Investment Manager Exemption
The Investment Manager Exemption offers several benefits for both the UAE Investment Manager and the foreign fund or customer.
Tax Advantage Through Investment Manager Exemption:
The Investment Manager Exemption facilitates asset management in the UAE, allowing regulated UAE Investment Managers to serve foreign funds and customers without establishing a permanent presence, thereby exempting them from UAE Corporate Tax.
Enhanced Competitiveness for Foreign Investment:
By alleviating tax burdens and compliance risks for both UAE Investment Managers and their foreign clients, the exemption boosts the UAE's appeal as a competitive destination for foreign investment and asset management.
Human Capital Enrichment and Industry Expertise:
Encouraging the employment of qualified resident investment professionals, the Investment Manager Exemption contributes to the growth of human capital and expertise within the UAE's asset management sector.
Preventing Unintended Permanent Establishment:
The exemption is strategically designed to prevent the inadvertent creation of permanent establishments for foreign funds, aligning with the broader objective of positioning the UAE as a regional hub for asset management.
Does an investment fund manager based in the UAE need to pay UAE Corporate Tax?
Yes, if the investment fund manager is a UAE resident or has a Permanent Establishment in the UAE, it is liable to pay UAE Corporate Tax on its income.
Is it necessary for both the fund manager and the investment fund to be regulated to qualify for the Corporate Tax exemption?
No, the investment fund exemption only requires one of them to be regulated. It can be the fund manager or the qualifying investment fund.
Will the foreign clients of a UAE Investment Manager become taxable in the UAE?
No, a regulated UAE Investment Manager can apply the “Investment Manager Exemption” if it satisfies certain criteria. This enables it to provide discretionary investment/asset management services to foreign clients and funds without making them have a Permanent Establishment in the UAE.
Will a foreign fund or entity whose manager is based in the UAE be taxed as a UAE resident for Corporate Tax purposes in the UAE?
No, the foreign fund or entity will not be taxed as a UAE resident in the UAE if the manager based in the UAE satisfies the requirements of the Investment Manager Exemption.
UAE Corporate Tax
Within the framework of the UAE Corporate Tax Law, the Investment Manager Exemption proves advantageous. It empowers a regulated UAE Investment Manager to deliver discretionary investment or asset management services to foreign funds and clients without establishing a permanent establishment in the UAE, contingent upon meeting specific conditions. This prevents foreign funds and customers from being liable for Corporate Tax UAE due to the services rendered by the UAE Investment Manager. The Investment Manager Exemption aims to prevent the accidental creation of permanent establishments for foreign funds and to promote the UAE as a regional hub for asset management. The Investment Manager Exemption will come into effect after the completion of the ratification process by both countries and will apply to income and capital gains derived in the taxable years beginning on or after the first day of January following the date of entry into force.
Salah is a qualified Tax Consultant with over 5 years of experience gained in distinct intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He is well-versed with reviewing and drafting tax documents, upon tax preparation and filing. Salah has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlying tax complexities.
