Understanding the UAE Corporate Tax Participation Exemption Schedule

What is the Participation Exemption Schedule?

The Participation Exemption Schedule is required if your business has derived income or incurred losses from a Participation (i.e., a shareholding in another juridical person) during the tax period. The primary purpose of this schedule is to confirm that all conditions for the Participation Exemption have been met and to calculate the related tax adjustment.

Key Conditions for Participation Exemption

Before completing the Participation Exemption Schedule, ensure you meet the following conditions:

1. Minimum Ownership Interest:
• You must hold at least 5% of the share capital or have an acquisition cost of at least AED 4 million.
• This ownership must be held for an uninterrupted period of 12 months prior to deriving income/loss
  
  
2. Subject to Tax Rule:
• The entity in which you hold a Participating Interest must be a resident of a jurisdiction with a corporate tax rate of at least 9% or be subject to an effective tax rate of 9%.
  
  
3. Nature of Income Exemptions:
• Dividends and other profit distributions from foreign participations.
• Gains or losses from the sale or transfer of a Participating Interest.
• Foreign exchange and impairment gains or losses related to the Participating Interest.

Steps to Complete the Schedule

1. Enter Basic Information:
• Provide the name of the participation and select the country of tax residence.
• If the participation is in the UAE, enter the Corporate Tax TRN.
• For foreign participations, provide the TIN/TRN issued by the foreign jurisdiction, if available.
  
  
2. Confirm Subject to Tax Rule:
• If the participation is not in the UAE, confirm whether the statutory or effective tax rate is at least 9%.
• If not, provide a reason for meeting the exception to the subject to tax test.
  
  
3. Report Income or Loss:
• Select the type of income or loss derived (e.g., dividends, gains, losses).
• Enter the amounts in the relevant fields:
• Field 18.7: Amount of income to be exempted.
• Field 18.8: Amount of loss to be exempted.
  
  
4. Ownership Interest and Acquisition Cost:
• Enter the percentage of ownership held by your business and any related group entities.
• If ownership is below 5%, provide the acquisition cost.
  
  
5. Historical Data:
• Enter the date when the income or loss was derived and confirm the ownership interest during that period.
• If you intend to hold the ownership interest for an uninterrupted period of 12 months, indicate this in the schedule.

Practical Example

Scenario: Your company, based in the UAE, holds a 7% stake in a foreign company in Germany. The acquisition cost was AED 5 million, and dividends of AED 2 million were received during the tax period.

1. Enter the name of the German entity and its country of residence.
2. Provide the TIN issued by Germany.
3. Confirm that the corporate tax rate in Germany is at least 9%.
4. Select the nature of income as dividends.
5. Enter AED 2 million in the income field.
6. Since your ownership exceeds 5%, no acquisition cost entry is needed.
7. Confirm that you held the interest for an uninterrupted period of 12 months.

How Fastlane Consultancy Can Help

Navigating corporate tax regulations can be challenging. At Fastlane Consultancy, we specialize in providing tailored tax advisory and compliance services. Our experts can assist you in accurately completing your Participation Exemption Schedule, ensuring you meet all the necessary conditions and maximize your tax exemptions.

Key Takeaways:

• Ensure you meet the minimum ownership interest and subject to tax rule.
• Accurately report the nature and amount of income or losses.
• Maintain proper documentation to support your claims.

Need help with your corporate tax return? Contact Fastlane Consultancy today for a free consultation and let us handle the complexities while you focus on growing your business!