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Participation exemption

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

What are the conditions for the UAE participation exemption?

A holding of 5%, or costing AED 4 million, kept 12 months in a company taxed at 9% or more. Its income is then exempt.

Per Federal Decree-Law No. 47 of 2022, Article 23, Participation Exemption

Income from a Participating Interest is exempt where the Taxable Person holds at least 5% of the shares or capital of a juridical person — or an interest whose aggregated acquisition cost is at least the published amount — that entitles it to at least 5% of the profits and liquidation proceeds; has held or intends to hold it for an uninterrupted period of at least twelve months; the Participation is subject to Corporate Tax or a tax of a similar character at a rate of at least 9%; and, where the Participation is a Related Party, not more than half its direct and indirect assets are interests that would not themselves qualify.

Head (b) of Article 20(2), through Article 22(2) and (3). Qualifying dividends, disposal gains and losses, and foreign exchange and impairment movements on the interest are left out of Taxable Income — and so is the expenditure incurred in acquiring or disposing of it, which MD 302 of 2024 capitalises rather than deducts. Interest on funding the acquisition stays deductible, subject to Chapter Nine.

The conditions, as the Decision applies them

A Participating Interest — either route

  • Ownership route: at least the published percentage of the shares or capital (Article 23(2)), AND an entitlement to at least that percentage of the profits available for distribution and of the liquidation proceeds (Article 23(2)(c))
  • Cost route: an aggregated acquisition cost at or above the published amount — treated as meeting the ownership minimum (Article 23(11)) and Article 23(2)(c) (MD 302 of 2024, Article 8(1))
  • Interests of every equity class are aggregated, and so are interests held by other members of the Taxable Person's Qualifying Group (MD 302 of 2024, Article 3)

Held long enough — 23(2)(a)

Held, or intended to be held, for an uninterrupted period of at least the published minimum. Intention suffices at the time of the income; if the interest is then not held for the period, Article 23(10) brings the exempted income back into Taxable Income in the period the holding falls below the minimum.

Subject to tax — 23(2)(b), and the routes that treat it as met

  • A foreign tax applied on a similar basis to Corporate Tax at a statutory rate of at least 9% (MD 302 of 2024, Article 6(1)); reliefs, bracket rates and temporary incentives do not disqualify it, but a tax on selected activities only, refunded on distribution, or due only on distribution does
  • An effective rate of at least 9% demonstrated to the Authority (Article 6(5) and 6(6))
  • A holding company whose principal activity is holding qualifying interests and whose income is substantially from them — directed and managed, and adequately staffed, in its own jurisdiction (Article 23(3); MD 302 of 2024, Article 7)
  • A Participation that is a Qualifying Free Zone Person or an Exempt Person (Article 23(4))

The asset test — 23(2)(d)

Not more than 50% of the Participation's direct and indirect assets may consist of interests that would not have qualified if held directly. It applies ONLY where the Participation is a Related Party of the Taxable Person (MD 302 of 2024, Article 9), is measured on the consolidated balance sheet or at Market Value, and must be met throughout the Tax Period (Article 10).

Not decided on this page

  • 23(6): no exemption insofar as the distribution is deductible for the Participation, or a deductible impairment was recognised before the conditions were met or on a loan to the Participation
  • 23(8): a loss on liquidation of a Participation is not exempt — it stays deductible, reduced under MD 302 of 2024, Article 13(4)
  • 23(9): no exemption for two years after acquiring the Participation in a transfer relieved under Article 26 or 27

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must supply and has not supplied stops the computation.

  2. 2

    Participating interest

    Met by an ownership interest at or above the published percentage, or an aggregated acquisition cost at or above the published amount.

  3. 3

    Entitlement to profits and liquidation proceeds

    On the ownership route only: the entitlement to profits and to liquidation proceeds must each be at least the published percentage. The cost route treats it as met.

  4. 4

    Holding period

    The interest must have been held, or be intended to be held, for at least the published minimum period without interruption.

  5. 5

    Subject-to-tax condition

    Taken as a determination, because it is met by a statutory rate, a demonstrated effective rate, a holding-company route or the Participation's own status — not by one rate comparison.

  6. 6

    Asset test

    Applies only to a Related-Party Participation, and is taken as a determination.

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.

Substantial shareholding

A 10% shareholding carrying 10% of profits and liquidation proceeds, acquired for AED 1,000,000, held for 24 months, in a foreign company taxed at 20%.

Computed

Exempt as computed: the interest is a Participating Interest through an ownership interest of 10% with an entitlement of 10% to profits and liquidation proceeds, both at or above 5%; it is held or intended to be held for at least 12 months; and the subject-to-tax and asset conditions are met on your determinations. So dividends, disposal gains and losses, and foreign exchange and impairment movements on it are not taken into account under Article 23(5), based on the figures and determinations you supplied. Article 23(6) still withholds the exemption insofar as the distribution is deductible for the Participation or a deductible impairment was recognised, Article 23(9) bars it for two years after a transfer relieved under Article 26 or 27, and Article 23(10) claws it back if the interest is not in fact held for the minimum period.

Decided by the participating interest, holding period, subject-to-tax condition and asset test

Small stake, large cost

A 2% interest, but acquired for AED 5,000,000, held for two years and adequately taxed — the cost route carries it, and treats the entitlement condition as met.

Computed

Exempt as computed: the interest is a Participating Interest through an acquisition cost of AED 5,000,000, at or above AED 4,000,000, which Article 23(11) and MD 302 of 2024 Article 8 treat as meeting both the ownership minimum and Article 23(2)(c); it is held or intended to be held for at least 12 months; and the subject-to-tax and asset conditions are met on your determinations. So dividends, disposal gains and losses, and foreign exchange and impairment movements on it are not taken into account under Article 23(5), based on the figures and determinations you supplied. Article 23(6) still withholds the exemption insofar as the distribution is deductible for the Participation or a deductible impairment was recognised, Article 23(9) bars it for two years after a transfer relieved under Article 26 or 27, and Article 23(10) claws it back if the interest is not in fact held for the minimum period.

Decided by the participating interest, holding period, subject-to-tax condition and asset test

Shares without the profit rights

10% of the capital, but in a class entitled to only 3% of profits, acquired for AED 1,000,000 — too little for the cost route to rescue it.

Computed

Not a Participating Interest as computed: the interest entitles you to 3% of the profits or liquidation proceeds, below the 5% Article 23(2)(c) requires, and the acquisition cost of AED 1,000,000 is below AED 4,000,000, so the cost route that would treat 23(2)(c) as met is not available. Based on the figures you supplied.

Decided by the entitlement to profits and liquidation proceeds

Held too short a time

A 10% interest adequately taxed, but held for only 6 months with no intention to hold longer.

Computed

The holding period condition is not met as computed: the interest has been held, or is intended to be held, for 6 months, below the 12-month minimum in Article 23(2)(a), based on the figures you supplied.

Decided by the holding period

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

5 inputs still need your determination:

  • What ownership interest is held in the shares or capital of the Participation, as a percentage — aggregating every class of equity interest and the interests held by other members of your Qualifying Group?
  • What is the aggregated acquisition cost of the ownership interests — consideration and capital contributions, less capital repaid, plus capitalised acquisition costs, at historical dirham values?
  • For how many months has the interest been held, or is it intended to be held, without interruption?
  • Is the Participation subject to Corporate Tax or a tax of a similar character at a statutory rate of at least 9%, or treated as meeting that condition — a Qualifying Free Zone Person or Exempt Person, a qualifying holding company, or an effective rate of at least 9% demonstrated to the Authority?
  • If the Participation is your Related Party, do not more than 50% of its direct and indirect assets consist of interests that would not themselves qualify for this exemption? Answer yes if it is not a Related Party — the asset test then does not apply.

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.

Thresholds

uae.participation_min_ownership
5% · reviewed 2026-09-28 · source
uae.participation_min_acquisition_cost
AED 4,000,000 · reviewed 2026-09-28 · source
uae.participation_min_holding_months
count 12 · reviewed 2026-09-28 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader