Corporate Tax - Income exempt from CT

Frequently Asked Questions

The following incomes are not subject to UAE CT:
  • Dividends and other profit transfers from resident or incorporated legal persons in the UAE;
  • Distributions of dividends and other profits from a Participating Interest in a foreign juridical entity
  • Various additional income from a Participating Interest, such as capital gains, foreign currency gains or losses, and impairment gains or losses
  • Earnings from a foreign branch or permanent establishment for whom the “Foreign Permanent Establishment” exclusion has been elected; and
  • When certain requirements are satisfied, income generated by non-residents from operating or leasing ships or aircraft for overseas travel

Capital gains from a Participating Interest are free from UAE CT under the participation exemption system. Additionally, capital gains that may result from intra-group transfers as well as reorganisation and restructuring transactions are exempt from CT. Other capital gains would be taxable in CT and regarded as regular income.

It is possible for a UAE company to make a strategic investment in another business that does not result in a 5% or greater ownership interest, or for events beyond the UAE shareholder company’s control to cause the percentage ownership in the Participation to fall below the 5% ownership limit.

The purpose of the participation exemption system is to avoid double taxation inside a group where a dividend-paying or stock-sale-producing underlying group firm has already paid taxes on its profits.

Dividends and other profit distributions received from a Participating Interest in a foreign juridical person are exempt from UAE CT, according to the participation exemption rules. A 5% or higher ownership stake in the capital or equity of the foreign juridical entity that satisfies the requirements of the participation exemption system is referred to as a participating interest.

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