The UAE Ministry of Finance has published Decision No. 116 of 2023*, which regulates the rules for exemption from participation in accordance with Article 23 of the new Law "On Taxation of Corporations and Enterprises" No. 47 (hereinafter referred to as the "Corporate Tax Law").
Let us recall that according to the Corporate Tax Law, the following incomes of UAE tax residents are exempt from taxation if the criteria for substantial participation are met:
The following criteria for substantial participation are provided:
Decision No. 116 of 2023 clarified these conditions, namely:
What to do?
We recommend that companies operating in the UAE check compliance with the established conditions of exemption from participation for corporate taxation purposes and assess the expediency of business restructuring.
Acsour Help
Acsour lawyers are actively monitoring the tax reform in the UAE and are ready to prepare practical recommendations and explanations on this issue for your business.
* - https://www.gccfintax.com/files/23242226_1684830021539.pdf
Let us recall that according to the Corporate Tax Law, the following incomes of UAE tax residents are exempt from taxation if the criteria for substantial participation are met:
- foreign dividends;
- income from the sale or other disposal of the participation share under the established conditions.
The following criteria for substantial participation are provided:
- the share of participation in the capital is not less than 5%;
- continuous ownership or continuous intention to own a share for at least 12 months;
- the share of participation is subject to corporate (or similar) tax in the country of which the subsidiary is a resident, at a rate not lower than 9%;
- the share of participation gives the taxpayer the right to receive at least 5% of the profit and liquidation payments;
- the share of participation of not more than 50% is directly or indirectly represented by participation shares or rights, the income from which would not be exempt from corporate tax if they belonged to the taxpayer directly;
- other conditions that may be set by the UAE Finance Minister.
Decision No. 116 of 2023 clarified these conditions, namely:
- the types of participation are specified: preferred and equity shares, shares with the right of repayment, participation shares and partner shares;
- the shares represented by various types of participation, as well as the shares owned by members of the consolidated group of taxpayers, are summed up when determining the 5% threshold;
- the minimum total cost of acquiring a share in the amount of at least 4,000,000 dirhams of the UAE (about $ 1.1 million) has been established.
- the conditions under which the right to a benefit remains in case of transfer of a share to another person are given;
- the requirement on the level of taxation in the country of which the subsidiary is a resident is explained in more detail (including for holding subsidiaries);
- the list of expenses for the acquisition and sale of a participation share is given — they do not reduce current profits tax obligations and are taken into account in the cost of acquiring a share, etc.
What to do?
We recommend that companies operating in the UAE check compliance with the established conditions of exemption from participation for corporate taxation purposes and assess the expediency of business restructuring.
Acsour Help
Acsour lawyers are actively monitoring the tax reform in the UAE and are ready to prepare practical recommendations and explanations on this issue for your business.
* - https://www.gccfintax.com/files/23242226_1684830021539.pdf
