Real Estate Investment Trusts, or REITs, are companies that own or finance real estate in various sectors of the UAE economy. Popular among both domestic and foreign investors, these entities provide a stable income for them and diversify the assets of the above investors. Foreign entrepreneurs find REITs especially attractive, as the latter offer access to the UAE’s lucrative real estate market.
Although some investment funds are listed companies, they still need to meet certain criteria to be recognized as REITs. The UAE REIT Regulations, issued by the Securities and Commodities Authority (SCA) in 2019 under number 6, define the rules and standards for REITs in the UAE. Additionally, the UAE Ministry of Finance established new corporate tax exemptions for REITs in 2023. These measures form the legal basis for the operation of real estate investment trusts in the Emirates.
Investment fund location matters: mainland vs certain emirates
Depending on the chosen registration zone, REITs can be established either on the mainland of the UAE or within its free zones. The location of the REIT affects the regulatory framework that applies to its activities. As for the REITs operating on the mainland, the following legal norms regulate their establishment and operation:
- Banking Law.
- UAE Central Bank Resolution 164/A/94, which covers the formation of financial companies, such as banks and investment firms.
- Laws on transparency requirements for financial companies.
- SCA (Securities and Commodities Authority) Chairman Resolution No. 9 of 2016, which sets out the rules and regulations for mutual investment funds
- SCA Administrative Resolution No. 6 of 2019 that defines the specific regulations for REITs in the UAE.
Those offshore real estate funds that are not subject to the local REIT laws applicable to the mainland of the UAE are set up in two main locations:
- Dubai International Financial Centre (DIFC)
- Abu Dhabi Global Market (ADGM).
The internal laws of each emirate regulate the funds and licensed companies operating in DIFC and ADGM.
Both private and public real estate funds can be formed by registering a company in the UAE or creating a trust.
REITs in the UAE: the latest regulations from the SCA
The UAE updated its regulations on real estate investment trusts (REITs) in 2019. The new rules apply to the mainland part of the country as well as the companies and funds registered there. To qualify as a REIT under the new SCA rules, a company must meet the following criteria:
- Closed UAE REIT:
- At least 75% of its total assets must be invested in UAE real estate, including activities and stages such as selling, managing, leasing, or disposing of properties.
- Public Fund:
- At least 75% of its assets must be invested in the UAE real estate market.
- At least 90% of its total income must come from investments, such as interest, dividends, and capital gains.
- It must distribute at least 80% of its net income to unit holders.
The above fund may not invest more than 20% of its total assets in property service companies in the UAE.
- Leveraged Fund: It has the right to invest up to 50% of its total asset value in UAE real estate.
REITs that comply with the SCA’s 2019 regulations may be registered in the local financial market.
New tax regulations for REITs in the UAE in 2023
The UAE Ministry of Finance adopted new rules in 2023 that allow Real Estate Investment Trusts (REITs) to apply for corporate tax exemption if they meet certain criteria. A part of the country’s Corporate Tax Law, these rules apply to real estate investment trusts and some other types of funds.
FYI: The new tax rules are relevant for companies and funds registered on the mainland of the UAE, as well as ADGM and DIFC funds. To comply, they have to register as taxpayers in the UAE and submit tax exemption applications.
Take a look at the general tax exemption terms for all types of funds in the UAE:
- The activities of the licensed companies or fund management entities are regulated by local or international authorities that are recognized under the Corporate Tax Law.
- Fund shares are traded publicly on the UAE stock exchange or a foreign exchange approved by the law or are available to investors otherwise.
- The fund’s main goal is other than to avoid taxes.
To qualify as a REIT, a fund must meet the following criteria:
- It must own or manage real estate assets (excluding land) worth at least AED 100 million.
- It must trade at least 20% of its capital on a UAE or foreign stock exchange that is legally recognized, or have at least two institutional investors as owners.
- At least 70% of its assets shall be represented by land or real estate that generates rental income.
FYI: Institutional investors are entities such as UAE and foreign government bodies, banks, insurance companies, pension funds, and social funds.
UAE REITs: what they offer to companies and investors
The UAE comes with a favorable environment for companies and investors interested in the real estate market. The new regulations on investment funds and the country’s legal framework provide several advantages:
- Raising capital without losing ownership by selling shares.
- Forming a REIT to quickly generate capital and increase income. Cash or in-kind contributions are allowed after an independent appraisal.
- Offering REIT shares with no need for a local distributor.
- Trading on the UAE stock exchange and listing on the Dubai Financial Market (DFM) or the Abu Dhabi Securities Exchange as a UAE REIT.
Here’s why investors choose UAE REITs:
- High returns over the long term.
- Diversified low-risk investments (as compared to other investment opportunities).
- A thriving real estate market in the UAE, with no stalled or bankrupt projects, that ensures steady dividend income for REIT investors.
- REIT shares are easy to buy and sell on major stock exchanges.
Amidst global crises and high inflation, REITs in the UAE remain your steady source of income.