UAE Corporate Tax Law on Holding Companies

As a global hub, many investors have incorporated holding structures in the United Arab Emirates for the purpose of holding various assets inside the country and outside the country. Holding companies are holding shares, real estate properties, and investments in various Financial Instruments etc. There are many intentions behind setting up of holding companies in the UAE and one of the reasons is tax benefits. Mainly, investors are setting up holding companies either in Free Zones or with offshore authorities.

Since the introduction of Corporate Tax Law in UAE, with effect from 01st June 2023, the Ministry of Finance and Federal Tax Authority has published many Cabinet Decisions, Ministerial Decisions, Guides and public clarifications. If you are the owner or partner of a holding company or planning to make a holding company in UAE, continue reading this article where we will discuss how you need to prepare for UAE Corporate Tax and what benefits UAE Corporate Tax provides for a UAE-based holding entities. 

While availing the benefits of a holding company, we need to keep in mind that a holding company shall register for Corporate Tax and file tax corporate taxes returns. The administrative compliances are to be taken care of in order to avoid administrative penalties. Read here, the administrative penalties under UAE Corporate Tax Law. 

To make an initial understanding, the below explanations are equally applicable for Mainland, Free zone and Offshore companies registered/ established in the UAE.
Before discussing the implications of Corporate Tax, let us understand the potential income which can be generated by a holding company.

Real Estate assets inside UAE or Outside UAE 

Rental Income or capital gain earned by a UAE holding company for the real estate properties located inside the country or from foreign country will be subject to Corporate Tax as per the Standard rate fixed by the Law. Any tax paid in a foreign country can be adjusted with tax liability in the UAE (Foreign Tax Credit). Setting up a Foundation in UAE, the tax benefits can be availed for income from real estate properties. Click on the link to know more 

Let us deep dive into other types of income/ gains that can be earned by a holding company.

• Dividends 
• Capital Gains ( at the time of selling the investment/shares 

Furthermore, the above-mentioned income can be generated from inside UAE or outside the UAE.

Dividends and Capital Gains earned by a Holding Company 

➤ As per the Corporate Tax Law Article 22 (1), a UAE company that gets dividends and other profit distribution from another UAE company, is exempted from Corporate Tax calculation (Calculation of Taxable income) without any conditions. 

➤ Dividend or capital gain earned by a UAE company from outside the UAE. Let us call this participation interest. As per Article 23(1) of Corporate Tax Law, income from participation interest can be exempted from Corporate Tax subject to the below condition.

1) UAE Company shall hold a minimum of 5% shares, and 5% voting rights and shall be eligible for 5% of division at the time of liquidating the foreign companies. If 5% shares are not held, the value of the shares shall be a minimum 4 Million Dirhams. 

2) UAE company either held the shares in the previous 12 months or shall have an intention to hold for the coming uninterrupted 12 months. Here, the attention required that as per the Corporate Tax Guide | CTGEXI1 published in October 2023, in case the income is generated by way of capital gain, the asset shall be held 12 months and intention to hold will not be considered. 

3) The income generated by foreign companies shall be subject to tax in the country where it is generated at a minimum rate of 9%. In the guide Corporate Tax Guide | CTGEXI1  further explained that if the income generated is taxed at an effective rate of 9% or more or the country has a jurisdictional tax of 9% or more can substantiate this condition.

4) 50% or more percentage of the assets owned by foreign company (directly or indirectly) shall qualify for participation interest exemption if those would have been directly owned by UAE Company.
Let us again make our understanding strong. Only Dividends from a UAE company to another company are exempted without any conditions. The income by way of capital gain shall be subject to participation interest income exemption conditions.

UAE holding company income and taxation summary as below:-

We have published case studies/ examples about this Article, click on this link to read the case study

While this article gave you insights about holding company exemption from UAE Corporate Tax, there are more insights for the below scenario;

If your holding company does not satisfy any conditions for Participation exemption, still you may get 0% Corporate Tax under a Qualifying Free Zone. Read more Holding Company Registered in Free Zone or Offshore in UAE.

To learn more about Holding Company and Exemption Under Corporate Tax in UAE, 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.