The United Arab Emirates (UAE) has recently made an important announcement regarding the taxation of non-resident juridical persons' connection in the country.
The UAE Ministry of Finance has introduced a Cabinet Decision that mandates foreign companies and overseas legal entities to pay corporate tax on income generated from immovable property located within the UAE.
This decision aims to align the UAE's corporate tax framework with international best practices and establish a level playing field for both domestic and foreign entities operating in the real estate sector.
Corporate Tax on Immovable Property
Under the Cabinet Decision, non-resident juridical persons who own immovable property in the UAE will be subject to corporate tax on a net-income basis. This means that the taxable income will be calculated after deducting relevant expenses that comply with the requirements outlined in the Corporate Tax Law.
The intention behind this taxation approach is to ensure that income derived from immovable property is treated consistently, in line with international best practices.
Younis Haji Al Khoori, the Undersecretary of the Ministry of Finance, stated that the UAE's Corporate Tax Law incorporates features that honor international taxation principles and maintain neutrality between domestic and foreign companies earning income from immovable property in the UAE.
This demonstrates the UAE's commitment to fostering a transparent and equitable business environment.
Exemptions for Real Estate Investment Income
While non-resident juridical persons are subject to corporate tax on immovable property income, there are exemptions available for certain types of investors.
Real estate investment income earned by foreigners or UAE residents, whether directly or through entities like trusts, foundations, or other fiscally transparent vehicles, may be exempt from corporate tax if it does not involve a permitted business activity.
Additionally, Real Estate Investment Trusts (REITs) and other Qualifying Investment Funds can potentially qualify for an exemption from corporate tax on income derived from investments in immovable property in the UAE.
However, it is important to meet the specific requirements outlined by the authorities to avail of these exemptions.
The cabinet decision has brought about significant changes in the taxation of income derived from immovable property. By aligning with international best practices, the UAE aims to promote a fair and transparent business environment while ensuring consistency in the treatment of such income.
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