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 avoid sharing profits/losses beyond fees 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 2024 Updates?
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.
Read More: permanent establishment UAE
Do UAE-Based Investment Fund Managers Pay Corporate Tax? 2024 Tax Liability Explained
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.
Comparison Table: IME vs. Permanent Establishment Rules
| Aspect | Investment Manager Exemption (IME) | Permanent Establishment (PE) Rules |
|---|---|---|
| Purpose | Exempts foreign funds from UAE Corporate Tax by avoiding PE triggers through UAE-based managers. | Determines when a foreign entity has a taxable presence in the UAE, triggering Corporate Tax liability. |
| Tax Implications | Foreign funds not taxed in UAE if IME conditions met. | Foreign entities taxed on UAE-sourced income if PE exists. |
| Eligibility | Applies to non-resident funds managed by UAE-based investment managers meeting strict criteria. | Applies to foreign entities with a fixed place of business (e.g., office, branch) or dependent agent in UAE. |
| Key Conditions | - Licensed UAE manager - No control over fund decisions - Limited ownership (<10%) - Fee-based income only | - Physical presence (office, factory) - Dependent agent acting on behalf of foreign entity. |
| Compliance Focus | Avoids PE by restricting manager’s authority and fund ties. | Taxes income linked to UAE operations if PE exists. |
| 2024 Updates | Stricter substance requirements (e.g., office space, local staff). | Expanded PE definitions for digital services and remote activities. |
Stricter Substance Requirements" for IME (2024)
The UAE’s 2024 IME updates mandate enhanced substance requirements to ensure investment managers have a genuine economic presence in the UAE. These include:
- Physical Office Space:
- Minimum office space in UAE (e.g., dedicated premises in Dubai DIFC or ADGM).
- Example: Leased office with operational infrastructure (not virtual offices).
- Local Staffing Mandates:
- At least 3 resident investment professionals with qualifications (e.g., CFA, CMA).
- Example: Portfolio managers, analysts, or advisors based in UAE.
- Regulatory Compliance:
- Valid license from UAE authorities (e.g., DFSA, SCA) or recognized foreign regulators.
- Activity Restrictions:
- Services limited to investment/asset management (no unrelated services like legal or accounting).
- Ownership & Control:
- Manager’s ownership in foreign fund capped at 10% (exceptions only for service-linked stakes).
- No involvement in fund’s day-to-day decisions (e.g., hiring/firing directors).
- Documentation & Disclosure:
- Mandatory submission of fund structures, management agreements, and staff credentials to the FTA.
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.
FAQs (Investment Manager Exemption)
1. What is the Investment Manager Exemption (IME) in the UAE?
The UAE Investment Manager Exemption (IME) is a corporate tax relief for foreign investors and fund managers. It exempts non-resident investors from UAE corporate tax on income generated through UAE-based fund managers, provided specific conditions are met.
2. Who qualifies for the UAE IME?
To qualify:
- The fund must be non-resident (not incorporated in the UAE).
- The UAE fund manager must not have authority to bind the fund in decisions.
- The fund’s activities must not create a Permanent Establishment (PE) in the UAE.
3. How does the IME benefit foreign investors?
The IME allows foreign investors to:
- Avoid UAE corporate tax on income from UAE-managed funds.
- Prevent double taxation through UAE’s double tax treaties.
- Access UAE’s financial ecosystem without triggering tax liabilities.
4. What are the key eligibility criteria for IME?
- Non-resident fund status.
- Limited decision-making power of the UAE fund manager.
- Compliance with Federal Tax Authority (FTA) guidelines.
5. How does the IME differ from Permanent Establishment (PE) rules?
While PE rules tax foreign entities with a fixed UAE presence, the IME exempts qualifying funds even if managed locally, provided they avoid creating a PE.
6. What documentation is required to claim IME?
- Fund incorporation documents.
- Management agreements proving limited authority of the UAE manager.
- Proof of non-resident investor status.
7. Are offshore funds exempt under IME?
Yes, offshore funds managed by UAE-based managers can qualify for IME if they meet non-resident criteria and avoid PE triggers.
8. What are the penalties for IME non-compliance?
Misuse of IME can lead to:
- Retroactive taxation of exempted income.
- Fines up to AED 50,000 (depending on violation severity).
9. Has the UAE updated IME rules in 2024?
Yes! 2024 updates include stricter substance requirements and mandatory disclosure of fund structures to the FTA.
10. How to apply for the IME in Dubai?
- Submit an application to the FTA with supporting documents.
- Conduct a tax health check to ensure compliance.
- Partner with a UAE tax consultancy (like Corporate Tax UAE) for seamless processing.
The UAE’s 2024 IME updates require immediate action. Secure your exemption before deadlines—contact us today.
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.
