Following amendments to the VAT Executive Regulations, fund management services in the United Arab Emirates are now exempt from VAT.

The Federal Decree-Law No. 8 of 2017 on Value Added Tax ("VAT Executive Regulations") was amended substantially by the Federal Tax Authority (FTA) on October 2, 2024, through Cabinet Decision No. (100) of 2024. The VAT structure that applies to fund managers and funds established in the United Arab Emirates (UAE) is significantly impacted by these changes.

The following are the main amendments that affect funds and fund managers:

Article 42(2): "The management of investment funds," which refers to "services provided by the fund manager independently for a consideration, to funds licensed by a competent authority in the State, including but not limited to, management of the fund's operations, management of investments for or on behalf of the fund, monitoring and improvement of the fund's performance," has been added to the definition of financial services.

Article 42(3):?With effect from November 15, 2024, investment fund management as defined by Article 42(2) is now expressly excluded from VAT.

According to the literal meaning of Article 42(2)(j), the exemption only applies if "funds licensed by a competent authority in the State" receive fund management services. Nevertheless, the UAE does not have a system that permits funding. We are aware that although the funds are registered in the United Arab Emirates, the fund managers possess the necessary licenses to carry out fund management operations. Thus, we believe that the purpose of Article 42(2)(j) is to exempt fund management operations carried out by fund managers who hold licenses from a UAE-based regulatory body. The UAE's overarching objective of becoming a preeminent international financial center is in line with the policy's intention to exempt fund management services from VAT.

Fund managers should assess the impact on their VAT recovery position (and thus cost base) as well as whether and to what degree their services are eligible for the VAT exemption. Funds that buy fund management services from fund managers should also check to see if the services are eligible for the exemption, particularly if they are purchased from outside the United Arab Emirates.

If you need any professional advise/ guidance regarding UAE CT and VAT, you may please contact our Tax Department:?

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