Holding companies just like limited liability companies, public joint stock companies, and similar other businesses that are legally registered personalities under the UAE law fall under the category of legal persons in the new corporate tax regime. When it comes to CT application, holding companies that are integrated in jurisdictions other than UAE but work effectively and legally inside the UAE will be considered UAE integrated companies and will fall under the scope of corporate tax in UAE. According to corporate tax law, the holding companies in UAE will remain exempt from corporate tax on dividends and capital gains coming from qualifying shareholdings.
Corporation tax on holding companies
Following is all the detail that the Ministry of Finance has shared about corporate tax exemption cases in the new corporate tax regime;
- As such the holding companies in the UAE fall under the category of legal persons no matter whether they are incorporated in jurisdictions other than UAE. If such businesses execute in the UAE legally, the new CT regime has to consider them.
- In line with the world’s successful financial centres and different countries, the new corporate tax in UAE considers all shareholding companies exempt from the corporate tax on dividends and capital gained from any sales at the subsidiaries. This incentive is given to the holding companies in order to avoid double taxation. Since the subsidiary company is already taxed whenever it makes any profit from sales, so the holding company will not be taxed when it receives its profits from shares or upon the sale of those profits.
- A holding company can only be considered exempt if it holds at least five percent shares from the subsidiary company. Less than this percentage will not make the holding company exempt from corporate tax. If the subsidiary company is present in a jurisdiction other than UAE, then the holding company will remain exempt on one condition that the subsidiary is subject to a tax of at least 9 percent (either corporate tax or any equivalent tax). This will prevent the income to shift to the subsidiary which may be present in a low or no-tax country.
- Holding companies in the free zones in the UAE already enjoy a 0 percent corporate tax rate because all free zone businesses are taxed at a 0 percent CT rate. However, a holding business in a free zone will only remain exempt if it only earns profits from its subsidiary companies through shares and also complies with all the conditions stated above.
Other exemption cases from corporate tax in UAE
The new CT regime has shared the following details about the exemption of different businesses from corporate tax in Dubai, UAE;
- The businesses that fall under the exemption category are termed exempt persons as per the new corporate tax regime. The exemption status can be given automatically and one can also file for it.
- All public institutes, federal authorities, government authorities, and relevant departments are exempt persons as per the new corporate tax law.
- Companies in the UAE that are completely owned by the UAE government and perform sovereign services are considered to be exempt.
- Businesses that extract and exploit the natural resources in the UAE are considered exempt from corporate tax since they are subject to emirate level taxes.
- Companies that provide benefits to the public of the UAE such as charities are considered exempt from the corporate tax.
- Certain investment funds and retirement funds are also considered exempt from CT in UAE.
- Some natural persons also do not fall within the scope of corporate tax in the UAE. Individuals that earn personal or employment income in the UAE whether they are UAE residents or foreign expatriates will not be taxed on their income. Similarly, dividends of natural persons and certain investments they make are also not taxed. Moreover, certain investments such as real estate investments in UAE that individuals might make on behalf of natural persons being their beneficiaries will not be taxed.
What is exempt income?
Exempt income, as per the new CT regime, is a type of income that will not be taxed. Usually, all the companies in the UAE and their income fall under the scope of corporate tax. However, there are chances of double taxation for which the UAE has made some rules to prevent the loss of businesses. UAE, being the leading business hub and a recognised holding company location, will exempt some form of income from corporate tax in order to avoid double taxation.
The most common example of income that is considered exempt in the new CT regime is the one that is earned by investing in other companies or companies outside the UAE. Also, business operations performed outside the UAE under foreign branches and subsidiaries are also not taxed in the UAE corporate tax law.
David Tobin did his degree in psychology at the University of Hertfordshire. He is interested in psychology, mental health, and wellness.