Examples of Exempted Capital Gains in UAE Corporate Tax

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  • Mon 22 Jul 2024 | By : Flyingcolour

Case Study/Example-1

ABC FZ-LLC, a company registered in Meydan FZ is having 2 subsidiaries as below;

  • A company in Dubai Mainland where ABC LLC is holding 100% shares. The investment in Dubai Mainland Company done in the year 2022.
  • A company in US where ABC LLC is holding 75% shares since 2023.

ABC LLC-FZ is following the calendar year as their financial year. The below events occurred during the financial year 2025.

  1. On 15th March 2024, Dubai Mainland Company issued a dividend to ABC LLC-FZ amounts AED 1,000,000/-.
  2. On 01st April 2024, ABC LLC-FZ sold 50% of shares of the mainland company and received a capital gain of AED 500,000/-.
  3. On 15th April 2024, ABC LLC-FZ received a dividend from US subsidiary amounts AED 300,000/-
  4. On 01st May 2024, ABC LLC-FZ sold 25% shares of US subsidiary and received a capital gain of AED 750,000/-

Assuming, ABC LLC-FZ has no other income during the financial year 2024, what will be the Corporate Tax computation of the company for the tax year 2024?

  1. Income received by ABC LLC-FZ by way of dividends is exempted from UAE Corporate Tax.
  2. Income received by ABC LLC-FZ by way of capital gain from the sale of shares of Mainland Company is exempted under the Participation Interest exemption.  Read here the conditions to be get the participation exemption for your company .
  3. Income received by ABC LLC-FZ from US subsidiary by way of dividend or profit distribution is exempted under the participation Interest Exemption.
  4. Income received by ABC LLC-FZ from US subsidiary as capital gain through sale of 25% shares is exempted under the participation interest exemption.

Since ABC LLC-FZ has only exempt income in the tax year 2024, while submitting the Corporate Tax return, as there is no other income recorded other than exempt income, ABC LLC-FZ has no payable tax for the year 2024.

 


 Case Study/Example-2

Capital Ventures Limited, an offshore company registered under Ras Al Khaima Economic Zone (RAKEZ) on 01st January 2020. The company has investments as follows:-

  • 3% Shares in a UAE Free Zone company since 01st December 2021 which has a value of AED 3 Million.
  • 4% shares in a UK company since 01st June 2023. The 4% shares has a value of AED 5 Million. 
  • Investment in US bonds for 10 Million Dirhams since 01st January 2024.

Capital Ventures Limited follows the calendar year as its financial year. The below events occurred during the first tax year of 2024.

  • UAE Free Zone Company issued a dividend of AED 200,000/- on 01st June 2024.
  • UAE Free Zone company’s shares sold on 01st November 2024 and received a capital gain of AED 500,000/-
  • On 15th November 2024, received a dividend from UK company AED 250,000/-
  • On 01st December 2024, received AED 500,000/- as interest from US bonds.

 

Assuming, Capital Ventures Limited has no other income in the financial year 2024, what will be the Corporate Tax computation of the company for the tax year 2024?

Income received

Exempt Income

Taxable Income

Dividend from UAE Free Zone company

AED 200,000/-, exempted without conditions

NA

Capital gain from the sales of shares of UAE Free Zone company

NA

AED 500,000/- not eligible for participation interest exemption due to the percentage of shares held which is less than 5% and the value of shares are below 4 Million dirhams.

Dividend received from UK company

NA

AED 250,000/- not eligible for participation interest exemption due to the percentage of shares held which is less than 5%. Even though the value of shares are more than 4 Million dirhams, Capital Ventures Limited has no eligibility of minimum 5% rights on the liquidation proceedings.

Interest from US Bonds

NA

AED 500,000/- is not eligible for participation interest exemption under Corporate Tax due to the condition violated of holding less than 5% shares in the company where the Bonds are held.

Let us summarize as below:-

  1. Total exempted income for the tax year 2024- AED 200,000/-
  2. Total  taxable income for the year 2024- AED 1,250,000/-

Here is the twist. Capital Ventures Limited is considered a Free Zone person. A Free Zone person may be eligible for a 0% Corporate Tax as a Qualifying Free Zone, subject to conditions. Read more .

Also, have you heard about Small Business Relief? Any company in UAE can avail of Small Business Relief and pay Zero-Tax, subject to conditions. Read more

To learn more about Examples of Exempted Capital Gains in UAE Corporate Tax, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.

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