As UAE businesses adapt to the 9% corporate tax regime, certain reliefs can significantly reduce your tax burden. One such powerful provision is the Participation Exemption, which allows businesses to exclude specific types of income, like dividends and capital gains, from their taxable income if certain criteria are met.
Understanding and leveraging the participation exemption can be a strategic advantage, especially for companies with cross-border investments.

In this blog, we break down what qualifies as a "participation," which incomes are exempt, and what conditions must be satisfied. -

Participation refers to an ownership interest in another entity, typically through shareholding. The UAE corporate tax regime provides that, if certain conditions are met, income from these participations is exempt from tax.

The exempt income includes:

1. Dividends and other profit distributions from a foreign participation

2. Gains or losses from the sale, transfer, or other disposition of the participation interest

3. Foreign exchange gains or losses related to the participation

4. Impairment gains or losses in relation to the participation interest

Dividends from UAE resident juridical persons do not need to meet the participation conditions and will be considered tax-free directly.

To claim this exemption, all of the following conditions must be met: -

The taxable person must own more than 5% of the shares or capital of the participation. Economic ownership must exist as well, i.e.,

- The participation must have available profits for distribution of at least 5% of the value of the ownership interest.​

- Proceeds upon liquidation must not be less than 5% of the ownership value.

The shares must be held, or intended to be held, for at least 12 months.

3. Taxable Jurisdiction

The country where the participation is resident must levy a corporate tax (or equivalent) at a rate higher than 9%. The tax system must also be of a similar character.

Not more than 50% of the assets (direct or indirect) of the participation can consist of non-qualifying interests (e.g., investments in tax havens or passive holdings that would 't themselves qualify for exemption if held directly). This rule ensures that the participation itself is not simply a shell holding tax-exempt or low-tax investments.

The Participation Exemption is a key feature of the UAE's corporate tax regime, designed to prevent double taxation and support international competitiveness. For businesses with substantial investments in other entities—particularly foreign companies—meeting the conditions for this exemption can translate into significant tax savings.

Disclaimer:This blog is intended for educational and informational purposes only and does not constitute professional or legal advice. For specific guidance related to your business, please consult a qualified tax advisor or contact our team directly.