Answer:
The participation exemption regime allows a UAE Taxable Person to exempt from Corporate Tax certain types of income derived from a Participating Interest in another company — typically dividends and capital gains. The regime is designed to eliminate double taxation within corporate groups.
(Article 23 of Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 302 of 2024)
Key Conditions for Participation Exemption:
To qualify as a Participating Interest, all of the following conditions must be met:
- Ownership test: The UAE company must hold at least 5% of the shares or capital of the other entity, or the acquisition cost must be at least AED 4 million.
- Holding period test: The interest must be held for at least 12 uninterrupted months.
- Entitlement test: The interest must entitle the holder to receive at least 5% of both profits and liquidation proceeds.
- Subject to tax test: The participation must be in a UAE company or in a foreign entity subject to tax at a rate of at least 9%, or deemed equivalent.
- Asset test: Not more than 50% of the participation’s assets may be non-qualifying ownership interests.
- Purpo...