VAT Update: Amended Regulations Exempts Investment Fund Management Services from UAE VAT
The Federal Tax Authority (FTA) published the Cabinet Decision No. (100) of 2024 (Decision), which amends the Executive Regulations of Federal Decree-Law No. (8) of 2017, effective from 15 November 2024.
Under the existing VAT regulations, the provision of investment fund management services for consideration is subject to VAT at 5%.
With the recent amendment expanding the definition of Financial Services to include investment fund management, these services are now exempt from VAT.
What’s New?
The non-exhaustive definition of investment fund management includes:
- Services provided by the Fund Manager independently for consideration to Funds licensed by a competent authority in the UAE.
- Management of the Fund’s operations.
- Management of investments for or on behalf of the Fund.
- Monitoring and improvement of the Fund’s performance.
It is important to note that the VAT exemption is available only if the services are provided to UAE-licensed Funds; services provided to non-licensed Funds will be subject to VAT at the standard rate of 5%.
Services provided to Funds established outside the UAE can be eligible for zero-rating benefits, subject to fulfillment of conditions; if the conditions are not fulfilled, they will be subject to VAT at the standard rate of 5% since the UAE authority does not license the outside UAE Funds.
The changes to the VAT treatment of fund management services in the UAE (from 5% to exempt) are significant and can have several positive implications for the investment landscape, such as
- The overall cost of investing in UAE-based funds is reduced, making them more attractive to international investors.
- UAE funds may benefit from a more substantial market presence, allowing them to compete more effectively with funds based in other regions.
- Stimulate growth in the UAE’s financial services sector, attracting more fund managers and service providers.
- It reflects a strong commitment to fostering a business-friendly environment in the UAE.
Next Steps
- Analyse Qualification for VAT Exemption: Fund Managers should examine whether their services qualify for the VAT exemption. It is crucial to understand how the exemption affects their ability to recover input VAT on expenses. This could influence cost structures and pricing strategies.
- Evaluate Services Purchased from Fund Managers: Funds should scrutinize whether the management services they procure from Fund Managers qualify for the VAT exemption, mainly when procuring from outside the UAE.
- Review VAT Registration Eligibility: Fund Managers should assess their eligibility to remain VAT-registered. The local Fund and Fund Managers could be obligated to deregister from VAT.
- Communicate Investors: Fund managers should communicate with investors the implications of the Fund’s performance and anticipated returns due to the change in the VAT treatment.
How can we help?
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Re/think is an award-winning regional multi-service business advisory and outsourced services firm providing accounting, regulatory and compliance, tax and VAT advisory, audit, HR consultancy and recruitment services to regulated firms, multi- and single-family offices, and other operating businesses.
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