Key takeaways
- The UAE participation exemption removes dividends, share-sale gains and related foreign exchange and impairment results from taxable income when a company holds a qualifying participating interest of at least 5% (or an acquisition cost of at least AED 4 million).
- A UAE company must hold, or intend to hold, the participating interest for an uninterrupted 12 months; for capital gains, the 12 months must have actually passed.
- The company whose shares you hold must be subject to corporate tax or a similar tax at a rate of at least 9%, though qualifying free zone persons and exempt persons are treated as meeting this test.
- The UAE participation exemption applies automatically when the conditions are met: there is no election and no application to the FTA, unlike the separate foreign permanent establishment exemption.
- Dividends from a UAE resident company are exempt income without any of the participation tests, so the conditions matter mainly for foreign dividends and for gains on selling shares.
What is the UAE participation exemption?
The participation exemption is a rule in Article 23 of Federal Decree-Law No. 47 of 2022 that exempts income from a qualifying shareholding from corporate tax. It exists so that profit already taxed in the subsidiary is not taxed again when it reaches the parent, and so that a holding company can sell a stake without a tax charge on the gain.
The rule sits alongside Article 22, which lists exempt income: dividends from a UAE resident company are exempt without conditions, and income from a participating interest is exempt when Article 23 is met. Resident companies use it, and so can a non-resident company for income attributable to its UAE permanent establishment (FTA guide, October 2023).
Which shareholdings qualify for the participation exemption?
A shareholding qualifies when it passes four tests at the time the income arises: size, holding period, the 9% tax test and the asset test. The table sets out each one and the rule behind it.
| Test | What the rule requires | Source |
|---|---|---|
| Size of stake | Ownership of at least 5%, or aggregate acquisition cost of at least AED 4 million; the interest must also carry a matching entitlement to distributable profits and liquidation proceeds | Article 23(2); FTA guide; Ministerial Decision No. 302 of 2024 |
| Holding period | Held, or intended to be held, for an uninterrupted 12 months | Article 23(2) |
| Tax test | The company you hold is subject to corporate tax or a similar tax at a rate of at least 9% | Article 23(2) |
| Asset test | No more than 50% of the company's direct and indirect assets are holdings that would not qualify if you held them directly; from 1 January 2025 this applies only where the company is a related party | Article 23(2); Ministry of Finance announcement on Ministerial Decision No. 302 of 2024 |
AED 4 million: aggregate acquisition cost that satisfies the size test even when the stake is below 5%. Source: Federal Decree-Law No. 47 of 2022, Article 23, and FTA Dividends and Participation Exemption Guide, checked 03 November 2026.
Ministerial Decision No. 302 of 2024 applies to tax periods starting on or after 1 January 2025 and changed how the asset test treats funds and similar investments. For earlier periods, check which decision applied to your financial year.
What income does the participation exemption cover?
The exemption covers four kinds of result from a qualifying participating interest: foreign dividends, gains or losses on selling it, foreign exchange gains or losses, and impairment gains or losses. Article 23(5) lists them, and they stay outside your taxable income only while the conditions continue to be met.
| Type of result | Treatment when the conditions are met | Condition to watch |
|---|---|---|
| Dividend from a foreign company | Exempt | 12 months held, or intended |
| Dividend from a UAE resident company | Exempt under Article 22, no participation tests | None beyond being a resident company |
| Gain or loss on selling the shares | Excluded from taxable income | 12 months actually held |
| Foreign exchange gain or loss on the stake | Excluded | Conditions still met when the result arises |
| Impairment gain or loss on the stake | Excluded | No deducted impairment before conditions were met |
Expenditure related to exempt income is not deductible, with interest expense treated differently under the FTA guide, so the exemption is not free of side effects on your cost base.
When does the participation exemption not apply?
The exemption fails when the paying company deducts the distribution, when the stake falls below the tests, or when you sell inside 12 months. Article 23(6) removes the exemption where the distribution is deductible for the company that pays it, and the FTA guide says this bites only if that company actually claims the deduction.
Say a Dubai mainland LLC buys 30% of an overseas company for AED 2 million and sells it after 8 months at a profit. The size test passes, but the 12 months have not elapsed, so the gain is taxable. Any dividend received earlier and treated as exempt on the basis of intention must be added back in the period of the sale (hypothetical example; FTA guide, section 5.3).
Two further rules matter in restructurings. Article 23(8) says a loss realised on liquidating a participation is not covered, and Article 23(9) suspends the exemption for two years where the interest was acquired through a non-qualifying exchange or a transfer under Articles 26 or 27.
How do you claim the participation exemption?
You claim it by excluding the qualifying income from your taxable income on your corporate tax return; no election is made and nothing is filed with the FTA beforehand. The FTA guide describes it as automatic, provided every condition is met on the date the income arises.
- List each shareholding and confirm the ownership percentage or acquisition cost against the share register.
- Record the acquisition date and your intention to hold for at least 12 months, and how the shares are shown in your financial statements.
- Check the company's tax position: its statutory corporate tax rate, or whether it is a qualifying free zone person or an exempt person.
- Test the asset test if the company is a related party, and confirm the distribution is not deducted by the payer.
- Prepare your return in EmaraTax with the exempt income excluded, and file the supporting workings with your records.
If you'd rather not track these dates by hand, the free UAE compliance calendar lists your company's tax and compliance deadlines.
What most guides don't tell you
The 12-month rule has two speeds. For dividends, a credible intention to hold for 12 months is enough on the day you receive them. For a sale, the full period must have passed. A dividend exempted on intention is added back to taxable income if you later sell part of the stake early, whatever your reason for selling (FTA guide, section 5.3).
Partial disposals are tested on the whole. The FTA guide tests the holding period on the participation as a whole, not on each tranche, so a partial sale inside 12 months puts the whole position under review.
An impairment deduction taken early can cost you the exemption. Under Article 23(6) and (7), an impairment loss you deducted before the conditions were met stays deducted, and its later reversal is exempt only up to the participation income that was not previously exempted, so the timing of write-downs matters for the books.
Free zone subsidiaries pass the tax test automatically. The FTA guide treats a participation that is a qualifying free zone person as meeting the 9% test, which matters when the company you hold sits in a UAE free zone.
Which deadlines apply to your company?
Your corporate tax return, VAT filings and licence renewals each run on their own dates. The free UAE compliance calendar is a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.
Frequently asked questions
How do dividends get taxed under UAE corporate tax? Dividends and other profit distributions from a UAE resident company are exempt income under Article 22 of Federal Decree-Law No. 47 of 2022, with no further conditions. Dividends from a foreign company are exempt only when the participation exemption conditions are met; otherwise they form part of your taxable income.
Are capital gains from selling shares taxable for UAE companies? A gain on selling a qualifying participating interest is exempt, but only if the conditions are met and you have actually held the interest for 12 months. Sell earlier, or fail another test, and the gain is taxable income (and a loss is not deductible on the same basis).
Does UAE corporate tax apply to foreign companies with a UAE branch? Yes, when the branch gives the foreign company a permanent establishment in the UAE, it becomes a non-resident taxable person under Article 11 of the corporate tax law. The tax applies to income attributable to that permanent establishment, and a fixed place of business such as a branch office will usually meet the definition.
What is a permanent establishment in the UAE? Article 14 of the corporate tax law treats a fixed or permanent place of business in the UAE as a permanent establishment, as well as a person who habitually exercises authority to conduct business on the foreign company's behalf. A genuinely independent agent is generally excluded, and the Cabinet can specify other forms of nexus.
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, consolidated with amendments (Ministry of Finance, January 2026 version)
- FTA Corporate Tax Guide: Dividends and Participation Exemption (October 2023)
- Ministry of Finance: amendments to Ministerial Decisions on Tax Groups and on the Participation and Foreign Permanent Establishment Exemptions (Ministerial Decisions No. 301 and No. 302 of 2024)
Last checked: 03 November 2026
This is general information, not tax or legal advice for your specific situation.