Understanding Income Exempt from Corporate Tax in the UAE: A Comprehensive FAQ Guide

Understanding Income Exempt from Corporate Tax in the UAE: A Comprehensive FAQ Guide" - This detailed FAQ guide explores key questions about income exempt from UAE Corporate Tax, including participation exemptions, dividends, capital gains, and ownership interests. Learn how FastLane can help your business navigate these exemptions and optimize your tax strategy.
May 22

What income is exempt from UAE Corporate Tax?

Certain types of income are exempt from UAE Corporate Tax, including qualifying dividends, capital gains, and other specific income types as defined by UAE tax law.

Are all dividends and other profit distributions from foreign juridical persons exempt from UAE Corporate Tax?

No, not all dividends and profit distributions from foreign juridical persons are exempt. Only those that meet specific criteria under the participation exemption regime are exempt.

Are capital gains exempt from UAE Corporate Tax?

Capital gains may be exempt from UAE Corporate Tax if they meet the requirements of the participation exemption regime.

What is the Participation Exemption regime?

The Participation Exemption regime allows businesses to exempt certain types of income, such as dividends and capital gains, from corporate tax if specific conditions related to ownership and tax treatment are met.

Can I benefit from a UAE Corporate Tax exemption if I own less than a 5% shareholding in a company?

Typically, a minimum ownership interest is required to benefit from the participation exemption. Ownership of less than 5% may not qualify, but specific conditions and exceptions could apply.

Will dividends received from a UAE resident company fall under the scope of the Participation Exemption?

Yes, dividends received from a UAE resident company can fall under the participation exemption if they meet the qualifying criteria.

How does the “subject to tax” test work for a foreign company for the purposes of the Participation Exemption regime?

The “subject to tax” test ensures that the foreign company from which dividends or capital gains are received is subject to a sufficient level of tax in its jurisdiction. This is a key criterion for the participation exemption.

How will the minimum required ownership interest be determined?

The minimum required ownership interest is typically determined based on the percentage of shares or equitable interests held in the company, as specified under the UAE Corporate Tax Law.

What is an ‘ownership interest’ for the purposes of the Participation Exemption regime?

An ‘ownership interest’ refers to the equity shares or other forms of equitable interests that a company holds in another entity, which qualifies for the participation exemption.

Can a branch claim the Participation Exemption?

Yes, a branch can claim the participation exemption if it meets the necessary conditions regarding ownership and the nature of the income.

Will option rights fall within the scope of the Participation Exemption?

Option rights may fall within the scope of the participation exemption if they result in qualifying ownership interests upon exercise.

May I also benefit from the Participation Exemption if I own Islamic financial instruments?

Yes, ownership of Islamic financial instruments may qualify for the participation exemption if they meet the required conditions.

Will I be able to exchange my ownership interest as part of a business reorganisation for another ownership interest and still meet the conditions of the Participation Exemption?

Yes, exchanges of ownership interests as part of a business reorganization can still meet the conditions for the participation exemption, provided the new interest meets all the necessary criteria.

When will a holding company meet the requirement of a “principal objective and activity of the Participation is the acquisition and holding of shares or equitable interests”?

A holding company meets this requirement if its main business activity involves acquiring and holding shares or equitable interests in other companies.

When will a holding company’s income “substantially” consist of income from Participating Interests?

A holding company’s income will be considered to "substantially" consist of income from participating interests if a significant portion of its total income comes from such sources, as defined by relevant regulations.

How will AED 4 million monetary minimum acquisition cost threshold for which a Participation will be the minimum ownership requirement be met, determined?

The AED 4 million threshold is determined by the acquisition cost of the ownership interest. Businesses must provide documentation to support that the acquisition cost meets or exceeds this amount.
How FastLane Helps with Corporate Tax Exemptions
FastLane provides expert guidance and comprehensive solutions to help businesses navigate the complexities of corporate tax exemptions in the UAE.

Here’s how we can assist:
Exemption Eligibility Assessment: We evaluate your income streams to determine eligibility for various tax exemptions.

Regulatory Compliance: FastLane ensures your business remains compliant with all UAE tax laws and regulations.

Tax Planning and Optimization: We provide strategic advice to maximize your tax benefits and minimize liabilities.

Documentation Support: FastLane assists with the preparation and submission of all necessary documentation to claim tax exemptions.

Partner with FastLane for expert corporate tax management and make the most of available exemptions. Contact us today to learn more about our services.
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