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Exempt income: dividends and distributions

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-EXDIV-2024.1
By

Are dividends exempt from UAE Corporate Tax?

Dividends from a UAE resident company are exempt, with their related costs. A foreign dividend is exempt only from a Participating Interest under Article 23.

Per Federal Decree-Law No. 47 of 2022, Article 22, Exempt Income

Dividends and other profit distributions received from a juridical person that is a Resident Person are not taken into account in determining Taxable Income, and neither is the related expenditure. A distribution from a foreign juridical person is excluded only where the holding is a Participating Interest as specified in Article 23.

This is the largest part of head (b) of Article 20(2) in practice. The output is the adjustment to Taxable Income: the income excluded and the related expenditure added back, netted — never the dividend alone.

What Article 22 excludes

The article excludes income and related expenditure together. Its five paragraphs are listed in full; this rule encodes the first two, and the others are rules of their own.

Encoded here

  • 22(1) — dividends and other profit distributions received from a juridical person that is a Resident Person. No holding test, no holding period
  • 22(2) — dividends and other profit distributions received from a Participating Interest in a foreign juridical person, as specified in Article 23

Also Exempt Income under Article 22, encoded elsewhere

  • 22(3) — any other income from a Participating Interest as specified in Article 23
  • 22(4) — income of a Foreign Permanent Establishment that meets the condition of Article 24
  • 22(5) — income derived by a Non-Resident Person from operating aircraft or ships in international transportation that meets the conditions of Article 25

The words that are easy to skip

Article 22 opens by excluding the listed income "and related expenditure". An exclusion of the income alone would be a figure that is right in isolation and wrong in a schedule.

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. The Participating Interest question is asked only of a foreign payer — Article 22(1) applies no holding test to a resident one, and asking would invite a reader to fail a test the article does not apply.

  2. 2

    Distribution from a juridical person

    Article 22(1) and 22(2) reach distributions received from a juridical person. Where the payer is not one, this article decides nothing either way.

  3. 3

    Distribution from a Resident juridical person

    Excluded under Article 22(1) with no further test.

  4. 4

    Participating Interest in a foreign juridical person

    A distribution from a foreign juridical person is excluded under Article 22(2) only through a Participating Interest under Article 23.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Dividend from a UAE subsidiary

A UAE holding company receives AED 5,000,000 of dividends from its wholly owned Dubai subsidiary, having incurred AED 120,000 of directly related holding costs.

Computed

The distribution of AED 5,000,000 is Exempt Income as computed: Article 22(1) excludes dividends and other profit distributions received from a juridical person that is a Resident Person, with no holding or holding-period test. With related expenditure of AED 120,000 also excluded, the adjustment to Taxable Income under Article 20(2)(b) is (AED 4,880,000), based on the figures you supplied.

Workings

Dividend or profit distribution receivedas supplied
AED 5,000,000
Related expenditureArticle 22 — excluded with the income
AED 120,000
Adjustment to Taxable IncomeArticle 20(2)(b) — the income excluded and the related expenditure added back
(AED 4,880,000)

Decided by the distribution from a resident juridical person

Dividend from a foreign subsidiary held as a Participating Interest

The same company receives AED 3,000,000 from a foreign subsidiary, and its holding meets the Article 23 Participating Interest test.

Computed

The distribution of AED 3,000,000 is Exempt Income as computed: Article 22(2) excludes dividends and other profit distributions received from a Participating Interest in a foreign juridical person, as specified in Article 23. No related expenditure was supplied, so the adjustment to Taxable Income under Article 20(2)(b) is (AED 3,000,000), based on the figures you supplied.

Workings

Dividend or profit distribution receivedas supplied
AED 3,000,000
Related expenditurenone supplied
AED 0
Adjustment to Taxable IncomeArticle 20(2)(b) — the income excluded and the related expenditure added back
(AED 3,000,000)

Decided by the participating interest in a foreign juridical person

Dividend on a small foreign portfolio holding

A dividend of AED 250,000 on a 1% listed holding abroad, which is not a Participating Interest under Article 23.

Computed

The distribution of AED 250,000 is not Exempt Income under Article 22 as computed: Article 22(2) reaches a distribution from a foreign juridical person only through a Participating Interest under Article 23, and you have indicated this holding is not one. The adjustment to Taxable Income under Article 20(2)(b) is nil on that basis.

Workings

Dividend or profit distribution receivedas supplied
AED 250,000
Related expenditurenone supplied
AED 0
Adjustment to Taxable Incomenil — not excluded under Article 22, so the accounting treatment stands
AED 0

Decided by the participating interest in a foreign juridical person

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

3 inputs still need your determination:

  • Is the payer of the dividend or profit distribution a juridical person?
  • Is the payer a Resident Person or a foreign juridical person?
  • What is the dividend or profit distribution received in the period?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Sources

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader