Participation exemption UAE: exempt dividends and share gains explained

Article 22(1) exempts dividends and other profit distributions received from a juridical person that is a resident person. A Dubai trading company that receives AED 200,000 from its Abu Dhabi subsidiary removes that amount from taxable income without needing the participation tests.

The exemption still has to be shown properly. The dividend should sit in its own income account, supported by the board resolution and the bank receipt, so the adjustment is easy to verify.

Under Article 23(2), a participating interest generally needs all of the following:

• An ownership interest of 5% or more in the shares or capital of a juridical person.
• The interest held, or intended to be held, for an uninterrupted period of at least 12 months.
• The investee subject to corporate tax or a similar tax at a rate not less than 9%, subject to the law's detailed rules.
• Entitlement to at least 5% of the investee's distributable profits and liquidation proceeds.

Article 22(2) exempts dividends and profit distributions received from a participating interest in a foreign juridical person, subject to Article 23. Article 23 also covers certain gains and losses on the interest. Clause 11 allows the Minister to treat an interest as meeting the 5% test where its acquisition cost exceeds a threshold the Minister sets, so small percentage holdings bought for a large sum may still qualify. Check the current ministerial decision for that figure before relying on it.

Because exempt income is removed from taxable income, related costs need care too. Speak to a tax agent about expenses incurred to earn exempt income.

The holding period and percentage are facts the FTA can ask you to prove years later. In HelloBooks you can keep share purchase agreements, registers and dividend notices attached to the investment account. The AI agent reads incoming dividend advices, posts them to the right income account and asks you to confirm which holding they relate to. When the accountant prepares the computation, ask "show dividend income by investee for 2025" and the list is ready for review.