UAE Participation Exemption 2026: Article 23 Dividends and Capital Gains

Are UAE Companies Paying 9% Corporate Tax on Dividends They Should Never Owe?

Quick Answer: The Article 23 participation exemption in UAE Corporate Tax law exempts dividends, capital gains, and liquidation proceeds from a qualifying shareholding (a “Participating Interest”) from UAE Corporate Tax entirely. This is the same relief set out under Article 23 of Federal Decree-Law No. 47 of 2022. The minimum threshold is 5% ownership or an acquisition cost of AED 4 million, held for at least 12 months.

Many UAE businesses with subsidiaries are paying 9% corporate tax on dividend income they should never owe. The UAE Participation Exemption is one of the most powerful tools in the Corporate Tax Law, yet it is widely misunderstood or missed entirely during tax return preparation. In this guide, Qaspro Global, a UAE-based tax and accounting consultancy, breaks down every condition, threshold, and practical rule you need to know about this exemption in 2026.

Published: 17 April 2026 | Last updated: 17 August 2026

What Is the UAE Participation Exemption?

The UAE Participation Exemption is a corporate tax relief under Article 23 of Federal Decree-Law No. 47 of 2022 (the UAE Corporate Tax Law). It removes UAE Corporate Tax from income earned through a “Participating Interest,” which is an ownership interest in a subsidiary that meets specific qualifying conditions. The detailed rules are set out in Ministerial Decision No. 116 of 2023, issued by the Ministry of Finance on 10 May 2023.

The policy rationale is straightforward: a subsidiary already pays corporate tax on its profits. When it distributes those after-tax profits as dividends to its parent company, taxing the parent again on the same income creates economic double taxation. The Participation Exemption eliminates that double layer. Without it, the same profit could effectively be taxed at 9% at subsidiary level and then 9% again at parent level, producing a combined burden far above the intended rate.

What Income Qualifies for the Participation Exemption?

Under Clause 5 of Article 23 of Federal Decree-Law No. 47 of 2022, the following income from a Participating Interest is exempt from UAE Corporate Tax:

• Dividends received from the subsidiary (the “Participation”)
• Capital gains on the sale or disposal of shares in the Participation
• Liquidation proceeds received when the Participation is wound up (subject to liquidation loss adjustment rules under Article 12 of Ministerial Decision 116/2023)
• Income from certain debt instruments issued by the Participation that are classified as equity interest under the applicable Accounting Standards (Article 5 of Ministerial Decision 116/2023)

This coverage is broad. A parent company that sells shares in a foreign subsidiary at a profit, or a UAE holding company that receives regular dividends from its operating subsidiaries, can exclude both types of income from taxable income entirely, provided the qualifying conditions below are met. For the broader picture of how UAE corporate tax treats capital gains from selling shares and other assets, see: UAE Capital Gains Tax 2026: How to Keep Your Rate at 0%.

The 5 Conditions Your Shareholding Must Meet

To qualify as a “Participating Interest” under Article 23 of Federal Decree-Law No. 47 of 2022, all of the following conditions must be satisfied. Failing even one condition means the income is taxable at 9%.

Condition	Requirement	Legal Basis
1. Ownership Type	Must be an equity interest: ordinary shares, preferred shares, redeemable shares, membership or partner interests, or equivalent rights that entitle the owner to profits and liquidation proceeds	Article 2, Ministerial Decision 116/2023
2. Minimum Ownership	5% or more of the Participation’s paid-up capital, OR a total acquisition cost of AED 4 million or more	Article 23 Clause 11, FDL 47/2022; Article 8, MD 116/2023
3. Holding Period	The ownership interest must be held continuously for at least 12 months before the income arises	Article 23 Clause 2(a), FDL 47/2022
4. Subject to Tax	The Participation must be subject to an effective tax rate of at least 9% on income or profits in its country of residence	Article 6, MD 116/2023
5. Assets Condition	Not more than 50% of the Participation’s direct or indirect assets should consist of immovable UAE property or interests that would be subject to UAE CT if held directly	Article 23 Clause 2(d), FDL 47/2022; Article 9, MD 116/2023

All five conditions must be satisfied at the time the income arises, not just at the time of acquisition. If you plan to sell shares in a subsidiary, confirm the holding period is met and document the subsidiary’s tax status before the transaction closes.

2025 Update: How Ministerial Decision No. 302 of 2024 Changed These Conditions

Direct answer: For tax periods starting on or after 1 January 2025, Ministerial Decision No. 302 of 2024 replaced the Article 23 rules set out in Ministerial Decision No. 116 of 2023 with two changes: the AED 4 million acquisition cost threshold now substitutes for the 5% requirement across all three ownership-based tests, not only the minimum ownership test, and the 50% asset test now only needs to be checked when the Participation is a Related Party of the taxable person.

Under Ministerial Decision No. 116 of 2023, the AED 4 million acquisition cost route only replaced the 5% minimum capital ownership test. Two other 5% thresholds still had to be met on their own: the right to at least 5% of the Participation’s profits, and the right to at least 5% of its liquidation proceeds. Ministerial Decision No. 302 of 2024 removed that gap: where the AED 4 million acquisition cost condition is met, it now also satisfies the profit-entitlement and liquidation-proceeds tests, so a minority investor relying on the cost route no longer has to separately prove a 5% profit or liquidation entitlement.

The second change narrows condition 5 in the table above. Under Ministerial Decision No. 116 of 2023, every Participation had to pass the 50% asset test regardless of its relationship to the taxable person. Under Ministerial Decision No. 302 of 2024, this test is required only where the Participation is a Related Party of the taxable person, so a Participation that is not a Related Party no longer needs the asset test checked at all.

Ministerial Decision No. 116 of 2023 still governs tax periods that started before 1 January 2025. For the financial year ending 31 December 2025, the return due by 30 September 2026 (see the filing section below) falls under Ministerial Decision No. 302 of 2024, so groups relying on documentation prepared under the older decision should confirm which version applies to the tax period being filed.

Does the 5% Rule Apply to UAE Domestic Subsidiaries Too?

Yes. The Participation Exemption applies to both UAE resident subsidiaries and foreign subsidiaries. If a UAE parent company holds 5% or more of a UAE operating subsidiary for at least 12 months, the dividends received from that subsidiary are exempt from corporate tax in the parent’s hands, provided the subsidiary is subject to UAE Corporate Tax at 9%.

UAE subsidiaries subject to the standard 9% rate will generally satisfy the “subject to tax” condition automatically. One area requiring careful analysis: if the UAE subsidiary is a Qualifying Free Zone Person (QFZP) paying 0% on its qualifying income, or if it has elected Small Business Relief (0% CT on revenue up to AED 3 million), the subject-to-tax condition must be analysed specifically for the income being distributed. Document the tax status of each subsidiary before filing to avoid FTA challenges during a tax audit.

The AED 4 Million Alternative Test (Minimum Acquisition Cost)

Under Clause 11 of Article 23 and Article 8 of Ministerial Decision No. 116 of 2023, a Taxable Person is treated as holding a Participating Interest where the aggregated acquisition cost of ownership interests in the Participation equals or exceeds AED 4,000,000. This is the alternative to the 5% ownership percentage test and is particularly useful for minority investors in large companies.

A UAE company that owns only 2% of a large corporation, but paid AED 6 million for those shares, qualifies for the exemption even though its percentage stake is below 5%. The AED 4 million threshold is calculated at historical cost (not current market value) and can include:

• Cash or in-kind consideration paid for the shares
• Subsequent equity contributions made to the Participation
• Less any equity or capital repayments received from the Participation
• Capitalised acquisition costs (professional fees, due diligence, commissions and brokerage fees)

Important warning: Under Article 8(6) of Ministerial Decision 116/2023, if the acquisition cost falls below AED 4 million for any uninterrupted period of at least 12 months, any income previously excluded from taxable income must be brought back into taxable income in the tax period when the threshold was breached. Monitor the cost basis of all shareholdings carefully when share buybacks or capital returns reduce the cost below this threshold.

Foreign Subsidiaries: When Does the 9% Tax Condition Apply?

For foreign subsidiaries, Article 6 of Ministerial Decision 116/2023 sets out how the “subject to tax” condition is satisfied. The foreign Participation must be resident in a country that imposes:

• A corporate income tax at an effective rate of at least 9%, applied on a similar basis to UAE Corporate Tax, OR
• Any tax on income, equity, or net worth that results in an effective rate of at least 9% on accounting profits

The law takes a practical approach. Differences in deductions, lower rates on certain brackets, temporary incentives, or alternative income taxes do not prevent the foreign tax from qualifying. What disqualifies it: taxes that apply only to selected activities, taxes that are refunded upon profit distribution, or taxes only triggered when profits are distributed.

Practically, subsidiaries in the UK (25% CT rate), Germany (15%+ corporate tax plus trade tax), Singapore (17% CT), India (25%+ CT), or France (25% CT) will easily meet this condition. Subsidiaries in zero-tax or very low-tax jurisdictions require detailed analysis before claiming the exemption.

Holding Companies: Special Rules Under Article 7 of MD 116/2023

If your subsidiary is itself a holding company (deriving most of its income from dividends and capital gains rather than active operations), Article 7 of Ministerial Decision 116/2023 imposes additional conditions. The subsidiary holding company must:

• Be directed and managed in its country of residence
• Have adequate personnel and premises for its holding and acquisition activities
• Not conduct activities other than those incidental or ancillary to acquiring and holding shares
• Derive 50% or more of its income (averaged over the current and preceding tax periods) from dividends, capital gains, and other income from Participating Interests

These requirements prevent the creation of artificial holding structures that exist solely to channel income through the exemption without genuine economic substance. A UAE company setting up a foreign holding vehicle must ensure these substance conditions are met or risk losing the exemption entirely. For the complete picture of how a UAE holding company should be structured, including Tax Group formation and qualifying group asset transfers, see our guide: UAE Holding Company Corporate Tax 2026: 3 Structures That Slash Your Tax to Near Zero.

Are Acquisition Costs Deductible When Buying Shares?

This is one of the most common questions from businesses acquiring subsidiaries. The answer under Article 10 of Ministerial Decision 116/2023 is: acquisition and disposal costs are not deductible as expenses. They are instead capitalised as part of the acquisition cost of the Participating Interest.

Non-deductible costs include: professional fees, due diligence costs, litigation costs, commissions and brokerage fees, stamp duty and registration charges, appraisal and valuation fees, and refinancing costs. These costs increase the acquisition cost for the purposes of the AED 4 million threshold test and are used in calculating gains or losses on eventual disposal.

There is one important exception: interest on loans taken to acquire and hold a Participating Interest is deductible, subject to the 30% EBITDA limitation rule under Chapter 9 of the Corporate Tax Law. For businesses using debt financing to fund acquisitions, refer to our guide on the UAE interest deduction limitation and the 30% EBITDA rule before structuring the acquisition.

Aggregating Holdings Across a Qualifying Group

Under Article 3 of Ministerial Decision 116/2023, if your company is part of a Qualifying Group under Article 26 of the Corporate Tax Law, all ownership interests held by group members in the same Participation can be aggregated when testing the 5% or AED 4 million minimum threshold.

This means if Company A (UAE parent) owns 3% of a target company and Company B (a 95% subsidiary of Company A) owns 2.5%, the combined 5.5% satisfies the 5% minimum condition. Different classes of shares in the same company (ordinary, preferred, and redeemable shares combined) are also aggregated under Article 3(1)(a). This aggregation rule opens the exemption to businesses that hold fragmented or multi-class shareholdings across group entities.

Worked Example: How the Participation Exemption Saves 9% on Dividends

Consider the following scenario to understand the practical impact:

Detail	Company A (UAE Parent)	Company B (UAE Subsidiary)
Location	Dubai Mainland	Abu Dhabi Mainland
Ownership Stake	Holds 80% of Company B for 4 years	Wholly operated business
Acquisition Cost	AED 12 million (above AED 4M threshold)	N/A
Company B Annual Profit	N/A	AED 5 million
CT Paid by Company B	N/A	AED 450,000 (9% on AED 5M)
Dividend Paid to Company A	AED 3.64 million received (80% of after-tax profit)	AED 4.55 million distributed
CT on dividend WITHOUT exemption	AED 327,600 (9% on AED 3.64M)	Profits already taxed once
CT on dividend WITH exemption	AED 0	N/A
Annual saving	AED 327,600	N/A

Company A holds 80% (above 5%), for more than 12 months, at a cost above AED 4 million. Company B is subject to UAE CT at 9%. The assets condition is met. All five conditions are satisfied. The AED 3.64 million dividend is fully exempt from corporate tax in Company A’s hands. Without the exemption, the same profit would be taxed twice, consuming AED 327,600 in unnecessary tax on a single year’s distribution.

May 2026: Claiming the Participation Exemption on Your EmaraTax Return

Corporate tax filing season is open for financial years ending 31 December 2025, with the deadline set at 30 September 2026. Businesses planning to claim the Participation Exemption on their EmaraTax return must complete four checks before filing:

• Confirm conditions at each income event. The five conditions must be satisfied when each dividend was received and when any shares were disposed of — not just at year-end. If a subsidiary changed its tax status during 2025 (for example, by losing QFZP status or electing Small Business Relief), the exemption may not apply to income arising after that change.
• Document the holding period for every disposal. Capital gains from shares sold in the 2025 tax year require proof that the 12-month holding period was met. Gather trade confirmations, share transfer agreements, and company registry entries now, before filing season gets busy.
• Aggregate across group members. If your group holds interests through multiple UAE entities, combine all ownership interests in the same subsidiary before testing the 5% threshold. This analysis must be documented in your tax work papers and referenced in the EmaraTax return.
• Prepare a subject-to-tax analysis for any low-tax subsidiary. The FTA has increased scrutiny on Participation Exemption claims where the subsidiary is resident in a jurisdiction with a nominal corporate tax rate below 9%. A detailed analysis under Article 6 of Ministerial Decision 116/2023 must be on file before the return is submitted.

Penalties for late filing under the new regime are AED 500 per month for the first 12 months, rising to AED 1,000 per month thereafter. File early. If your group structure includes VAT-registered entities making both taxable and exempt supplies, also verify that input tax apportionment under Article 55 of the VAT Executive Regulation is correctly calculated — FTA audit teams reviewing CT returns routinely cross-check VAT apportionment positions at the same time.

Do Participation Exemption Claims Need Audited Financial Statements in 2026?

Yes, in many cases. Under Ministerial Decision No. 84 of 2025, any taxable person with revenue exceeding AED 50 million per tax period, and every Qualifying Free Zone Person, must prepare and maintain audited financial statements for tax periods starting on or after 1 January 2025. Holding companies claiming the Article 23 participation exemption on large dividend or capital gain flows frequently cross that AED 50 million revenue line, which means the financial statements supporting the exemption claim must carry an independent auditor’s opinion.

This matters for documentation. The FTA reviews participation exemption claims against the ownership percentage, the 12-month holding period and the subject-to-tax condition, and audited numbers make each of these positions far easier to defend. Qaspro Global advises holding companies to align their audit scope with their exemption schedule, so the auditor verifies the investment register, dividend income and disposal gains in the same engagement. See our full guide to external audit requirements and costs in the UAE for 2026 for thresholds, free zone deadlines and current fee ranges.

Dividends and capital gains routed through a UAE offshore company can qualify for the Article 23 participation exemption, keeping the effective rate at 0%.

Exempt participation income is removed from profit during the corporate tax calculation, as Article 20(2)(b) requires.

Gains on qualifying shareholdings may be exempt, but other unrealised gains are not, which is where the realisation basis election matters.

Investors in Qualifying Investment Funds and REITs operate under a separate exemption regime. See our guide to UAE Corporate Tax for REITs and Qualifying Investment Funds 2026 for the 80% distribution rule and investor conditions.

How Article 23 Interacts With Free Zone Qualifying Income

A common question from Free Zone Persons is whether Participation Exemption income counts toward, or against, the separate Qualifying Income test used for the 0% Free Zone Corporate Tax regime. Dividends and capital gains that are already exempt under Article 23 are not treated as Excluded Activities income for the purposes of the Free Zone regime; they sit outside that calculation entirely because they are exempt income at the outset, not taxable income that then needs to qualify for a 0% rate. This distinction matters for Free Zone holding companies structuring their income mix: exempt Participation income does not need to be tracked against the 5% or AED 5 million de minimis threshold used for non-qualifying Free Zone income, because it was never taxable income in the first place.

Interaction With the Foreign Tax Credit (Article 47)

Where a Participation does not qualify for Article 23 exemption, perhaps because the subject-to-tax test is not met even though real foreign tax was paid, the Foreign Tax Credit under Article 47 can sometimes reduce the resulting UAE Corporate Tax liability instead. The two reliefs are mutually exclusive for the same income: a business cannot claim both the Participation Exemption and a Foreign Tax Credit on the same dividend or gain. Where a Participation’s qualification is uncertain, it is worth modelling both outcomes, exempt under Article 23 versus taxable with a foreign tax credit under Article 47, before assuming the more favourable one automatically applies. See our guide on Article 47 Foreign Tax Credit for the full mechanics.

If your group structure review under Article 23 also involves staff or family members needing UAE residency, Yalah Dubai’s guide on UAE Family Visa Sponsorship 2026 covers the ICP salary requirement, documents, and steps to sponsor a spouse and children.

Frequently Asked Questions

What is the UAE Participation Exemption?

The UAE Participation Exemption under Article 23 of Federal Decree-Law No. 47 of 2022 exempts qualifying dividends, capital gains, and liquidation proceeds from a shareholding in a subsidiary (called a “Participation”) from UAE Corporate Tax. Detailed conditions are set out in Ministerial Decision No. 116 of 2023, issued on 10 May 2023.

What is the minimum shareholding to qualify for the Participation Exemption?

You need either 5% or more of the Participation’s paid-up capital, or a total acquisition cost of AED 4,000,000 or more. The ownership must be held continuously for at least 12 months before the income arises, under Article 23 Clause 11 of Federal Decree-Law No. 47 of 2022 and Article 8 of Ministerial Decision 116/2023.

Does the Participation Exemption apply to dividends from UAE subsidiaries?

Yes. The exemption applies to both UAE resident and foreign subsidiaries. A UAE parent holding 5% or more of a UAE subsidiary for at least 12 months, where that subsidiary is subject to UAE Corporate Tax at 9%, can treat dividends received from that subsidiary as exempt income.

What effective tax rate must a foreign subsidiary pay to qualify?

The foreign subsidiary must be subject to an effective tax rate of not less than 9% on income or profits under Article 6 of Ministerial Decision No. 116 of 2023. Subsidiaries in most OECD countries (UK, Germany, France, Singapore, India) will satisfy this condition. Zero-tax and very low-tax jurisdictions require specific analysis.

Are dividends from zero-tax subsidiaries exempt under the Participation Exemption?

No. If the subsidiary is resident in a jurisdiction with 0% corporate tax and does not meet the alternative tests in Article 6 of Ministerial Decision 116/2023, the “subject to tax” condition fails. The dividends received from that subsidiary are taxable at 9% UAE Corporate Tax. Take advice before structuring investments through zero-tax jurisdictions.

Are capital gains on selling shares in a UAE company also exempt?

Yes. Capital gains from disposing of a Participating Interest, whether in a UAE or foreign company, are exempt under Article 23 of Federal Decree-Law No. 47 of 2022, provided all five qualifying conditions are satisfied at the time of disposal. The 12-month holding period is particularly critical: selling shares held for only 11 months produces a fully taxable gain at 9%. For the full picture of UAE capital gains tax rules across all asset types, see: UAE Capital Gains Tax 2026: How to Keep Your Rate at 0%.

Can I deduct the legal and advisory costs of buying shares in a subsidiary?

No. Under Article 10 of Ministerial Decision 116/2023, acquisition costs including professional fees, due diligence costs, commissions, brokerage fees, stamp duty, and appraisal costs are not deductible as expenses. They must be capitalised as part of the acquisition cost of the Participating Interest. Interest on loans used to fund the acquisition is deductible, subject to the 30% EBITDA cap.

What happens if our group holds shares across multiple entities?

Under Article 3 of Ministerial Decision 116/2023, ownership interests held by members of a Qualifying Group in the same Participation can be aggregated to test the 5% minimum threshold. For example, if three group companies collectively hold 6% of a target company, the condition is met even though no single entity holds 5%. Different share classes in the same company can also be aggregated.

What if the acquisition cost drops below AED 4 million after I invested?

Under Article 8(6) of Ministerial Decision 116/2023, if the aggregated acquisition cost falls below AED 4 million for any uninterrupted period of at least 12 months, any previously exempt income must be included in taxable income in the tax period when the threshold was breached. This can happen when the Participation makes capital repayments or returns equity to investors.

Does the participation exemption still matter now that the 15% DMTT exists?

Yes. The Domestic Minimum Top-Up Tax under Cabinet Decision 142 of 2024 only applies to multinational groups with consolidated global revenue of EUR 750 million or more. For everyone below that threshold, Article 23 of Federal Decree-Law 47 of 2022 continues to make qualifying dividends and capital gains fully exempt from the 9% corporate tax, exactly as before.

What is the minimum holding to qualify for the participation exemption in 2026?

A 5% or greater ownership interest held, or intended to be held, for at least 12 months, or alternatively an acquisition cost of at least AED 4,000,000 under Ministerial Decision 116 of 2023. The participation must also be subject to a tax of at least 9% in its home jurisdiction or meet one of the alternative tests.

What changed under Ministerial Decision No. 302 of 2024?

For tax periods starting on or after 1 January 2025, Ministerial Decision No. 302 of 2024 replaced Ministerial Decision No. 116 of 2023 for the participation exemption. The AED 4 million acquisition cost threshold now also satisfies the profit-entitlement and liquidation-proceeds tests, not only the minimum ownership test, and the 50% asset test now only applies where the Participation is a Related Party of the taxable person.

Need Expert Help?

Qaspro Global’s team of UAE corporate tax consultants helps businesses structure shareholdings correctly, claim the Participation Exemption without risk, and stay fully FTA-compliant. Whether you hold UAE or foreign subsidiaries, we review every condition before your tax return is filed. Contact us today for a free consultation.

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UAE Participation Exemption 2026: Key Updates and Common Errors

The UAE participation exemption under Article 23 of Federal Decree-Law No. 47 of 2022 remains one of the most valuable Corporate Tax reliefs available to UAE holding companies. In 2026, Qaspro Global continues to see businesses miss this exemption by failing the ownership threshold test or the 12-month holding period condition. Both errors result in the full dividend or capital gain being taxed at 9%.

The two-year look-back rule for short-term ownership adjustments is particularly important: if you sold shares after holding them for less than 12 months, the gain is taxable even if you restructure afterwards. The exemption is prospective from the date conditions are met, not retrospective. For holding companies with multiple subsidiaries, the conditions must be reviewed for each investment separately.

Businesses that hold shares through an intermediate holding vehicle should also confirm that the underlying investment itself meets the 5% ownership or AED 4,000,000 cost basis threshold under Ministerial Decision No. 116 of 2023. Indirect holdings below this threshold do not benefit from the exemption.