Corporate Tax for Holding Companies in UAE: A Comprehensive Guide

A Holding company can be formed by local or foreign investors to hold shares of other companies or to acquire other assets. One of the main advantages of a holding company is that it allows its owner to control the operations of other companies and can come with corporate tax benefits. 

Furthermore, there is no restriction on the incorporation of holding companies in the UAE and foreign investors can register holding companies under different forms under the Federal Law No.2 of 2015 on Commercial Companies, known as the new company law, that replaced the previous companies commercial law (No. 8 of 1984).

How does corporate tax apply to holding companies in UAE?

Holding companies in the UAE are subject to corporate tax on their income, including dividends and capital gains. However, certain exemptions may apply. For expert guidance on optimizing tax strategies for holding companies, consult Corporate Tax UAE.

A Dubai holding company, on the other hand, cannot conduct business activities, such as providing services or manufacturing goods. , According to Article 266 of the New Companies Law, now limited liability companies and joint-stock companies are permitted to establish as holding companies so that they can conduct business activities merely through the pertinent subsidiaries.

Corporate Tax Exemption for UAE Holding Companies

Although holding companies will generally be under the scope of corporate tax, there are certain income streams that will be exempt. The Ministry of Finance in its FAQs regarding this mentioned capital gains and dividends obtained from specific qualifying shareholdings may be exempt from corporate tax in UAE. 

An ownership interest in a UAE or foreign company that meets certain conditions stipulated in the UAE Corporate tax law is considered a qualifying shareholding. These conditions are yet to be specified and remain unclear.

However, from what is known the term "qualifying shareholder" can be defined as a direct or indirect holding in a company that represents more than ten per cent or more of its share capital or voting rights or which enables significant influence over its management; and "qualifying shareholder" shall be construed accordingly; 

Given this, it is expected that stipulations to meet the conditions of a qualifying shareholding can include:

• A shareholding at a minimum level (plausibly at least 10% conforming with the Pillar Two rules) and a minimum holding period.

For comparability, it can be noted that the Pillar Two rules eliminate or rule out the below mentioned from the Global Minimum Tax (GMT):

1. All Dividends except those that have shareholdings less than 10%.
2. All Capital gains except those that are obtained from a sale of the shareholdings of less than 10%.

Read More: Deductible & Non-Deductible Expenses Under Corporate Tax in the UAE

It is a possibility that the Corporate tax regime in the UAE of the Ministry of Finance may be in line with the rules of Pillar Two.

The main conditions for a UAE holding company to benefit from the participation exemption are that: 

• At least 5% of the shares of the subsidiary company must be owned by it.
• Furthermore, the corporate tax law also states stipulations to prevent income from getting shifted to a no-or low-tax country where the subsidiary exists. Thus, the exemption will only be obtainable if the foreign subsidiary is contingent on corporate tax at a rate of no less than 9%.

Despite the free zone company benefiting from the 0% corporate tax rate, any capital gains obtained from the allotment of shares in a free zone person will be exempt from corporate tax in UAE, wherein the free zone person is a holding company and its income is heavily attained from shareholdings in subsidiary companies, provided such companies meet the conditions for the participation exemption mentioned above.

Leading Corporate Tax Advisors in UAE

The Corporate Tax advisors at Corporate Tax UAE are highly qualified, well-informed, and experienced accountants who have industry-specific experience in taxation to help your business comply with UAE laws and practices and meet Corporate tax filing requirements as well as corporate tax planning and management.

Our firm in Dubai and all around UAE provides the best Corporate tax services to clients, in line with the rules and regulations of the FTA. Get in touch with us today!