Key Insights on UAE Corporate Tax on Dividends & Capital Gains: Applicability & Exemptions

Most businesses, including real estate, struggle with corporate taxation when it comes to owning and selling properties in the UAE.  The confusion mainly lies in whether dividends and capital gains will be taxed. Uncertainty around these areas makes it difficult for companies to plan their finances or attract investors.

This lack of clarity leads to erroneous tax filings, double taxation, and missed opportunities for exemptions. Businesses that fail to understand these details may also face penalties or lose their competitive edge.

The UAE Corporate Tax Law provides clear rules and several exemptions for dividends and capital gains, which you can learn with the assistance of our corporate tax agents in the UAE at Jitendra Chartered Accountants (JCA).

1. Corporate Tax on Dividends for UAE Companies

Dividends earned by a UAE resident company from another UAE company are exempt from corporate tax. This applies to dividends paid by both regular mainland companies and Free Zone Persons enjoying the 0% tax rate.

This rule ensures that profits are not taxed twice; once at the level of the subsidiary and again when distributed to the parent company. It also supports the UAE’s position as a business-friendly jurisdiction where holding companies can operate efficiently.

Businesses must ensure proper record-keeping and confirm that the dividend income qualifies as domestic under the law. Consulting with our corporate tax advisors in the UAE can help confirm this status before filing tax returns.

2. Dividends from Foreign Companies

Dividends received from foreign companies can also be exempt from UAE corporate tax, provided certain conditions are met.

The key condition is that the UAE shareholder company must have to own at least 5% of the shares in the foreign company. Additionally, the foreign subsidiary must be subject to a corporate tax rate of at least 9% or an equivalent rate in its home country.

This rule is designed to prevent businesses from transferring profits to low-tax or no-tax jurisdictions. If these conditions are satisfied, dividends from foreign firms can be excluded from the taxable income of the UAE parent company.

3. Capital Gains on Sale of Shares

Capital gains from the sale of shares in subsidiary companies, whether in the UAE or abroad, are also eligible for exemption if the participation conditions are met.

To qualify:

• The UAE shareholder must hold at least 5% ownership or 4M in the subsidiary.
• The shares must be held for at least 12 months(or there must be an intention to hold them for that period).
• The subsidiary must be subject to corporate tax of 9% or higher in its jurisdiction.
• No more than 50% of the subsidiary’s assets should be made up of non-qualifying investments.

The above rules also apply to dividend income from foreign companies. These requirements ensure that only genuine business investments, not short-term financial trades, enjoy the exemption. Ask our corporate tax agents in Dubai if you qualify for such exemptions.

4. Capital Gains from Free Zone Entities

A Free Zone Person can secure benefits from a 0% corporate tax rate if it maintains proper substance in the UAE and follows all legal requirements.

Capital gains on the disposal of shares in a Free Zone Person may also be exempt, but only if specific conditions are satisfied. The exemption applies when the Free Zone company mainly earns its income from shareholdings in subsidiaries that meet the participation exemption rules.

This rule encourages holding structures within UAE free zones, allowing investors to manage regional operations efficiently while staying compliant with tax regulations.

5. Individual Shareholders

Individual investors are generally outside the scope of the UAE corporate tax. Income earned by individuals, including dividends, capital gains, and rental income, is not subject to corporate tax.

This exemption applies whether the individual resides inside or outside the UAE.

6. Participation Exemption in Detail

The participation exemption is one of the most important features of the UAE Corporate Tax Law. It covers dividends, profit distributions, and capital gains from qualifying shareholdings.

The exemption applies when the ownership interest meets the following conditions:

• Minimum 5% ownership or a cost of at least AED 4 million
• 12-month continuous holding or an intention to hold for that period

The subsidiary is subject to a minimum 9% corporate tax rate in its country. Learn deeply about this from our expert corporate tax agents in Dubai.

How can Jitendra Chartered Accountants help?

JCA is one of the top-notch firms that provides comprehensive tax services, including;

• Corporate tax consultation and advisory
• Corporate tax registration and deregistration
• Corporate tax return filing and payments
• Corporate tax dispute management and representation before regulatory authorities
• Corporate tax implementation and training