All About Participation Exemption Under UAE Corporate Tax
Business owners in the UAE must follow the new corporate tax rules. The UAE made these tax rules in 2023. Companies now need to learn about all rules, including deductions and exemptions, to save money. One big rule is the participation exemption. Companies must know how to use this exemption to lower their tax bills.
What Is Participation Exemption?
Participation exemption helps businesses avoid double taxation. If a company owns part of a foreign business, it can get some income as tax-free. This includes some dividends and capital gains. With this exemption, UAE corporate tax does not apply to income from certain foreign shares.
- Foreign dividends may be exempt from tax.
- Gains or losses from selling shares may be exempt.
- Some foreign exchange and impairment gains or losses may also get exemption.
Participation exemption rules explain what income counts, what losses are covered, and what happens if you don’t meet the conditions.
Conditions for Participation Exemption
Companies must meet some tests to get this exemption:
- Hold at least 5% ownership in another company (minimum ownership test).
- If less than 5%, the cost of buying shares must be at least AED 4 million (minimum acquisition cost test).
- Hold the shares for at least 12 months, or plan to hold for 12 months (holding period test).
- The foreign company must pay tax at a rate of 9% or more (subject to tax test).
- The owner must get at least 5% of profits and any liquidation payments (entitlement to profits and liquidation test).
- No more than 50% of the company’s assets can be non-qualifying assets (asset test).
If a company owns less than 5% of another company, it can still qualify if it meets the acquisition cost rule.
To qualify for participation exemption, a business must:
- Own enough shares or spend enough on shares.
- Hold shares long enough.
- Make sure the foreign company is taxed.
- Have the right to profits and liquidation money.
- Check assets meet the test.
Why Should Businesses Know About Participation Exemption?
Knowing about participation exemption can help UAE companies:
- Avoid double taxation on foreign profits.
- Reduce overall tax bills.
- Stay compliant with UAE corporate tax law.
- Use available tax planning options.
How Mubarak Al Ketbi Chartered Accountants Can Help
Mubarak Al Ketbi Chartered Accountants can help your business with every rule for participation exemption. Our team checks your company’s records, tests your ownership, and helps you save money on taxes. We keep your business up to date with the latest UAE rules.
When you trust us, you know that we’ll go the extra mile—because we’re always ready to lend a helping hand!
For more information:
- Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud, Dubai – UAE
- Contact/WhatsApp: +971 50 276 2132
