Ministerial Decision No. 116 of 2023 · UAE Federal
Set the detailed conditions for the participation exemption on dividends and capital gains from qualifying shareholdings, including the AED 4 million minimum acquisition cost alternative, the 12-month holding period and the 9% subject-to-tax test; repealed by Ministerial Decision No. 302 of 2024 but still applies to tax periods that began before 1 January 2025.
Ministerial Decision No. 116 of 2023 was the first detailed rulebook for the Participation Exemption in Article 23 of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022), under which dividends and capital gains from a qualifying shareholding are exempt from Corporate Tax. It was issued on 10 May 2023 and came into effect the day after publication. It has been superseded: Ministerial Decision No. 302 of 2024 repealed it for Tax Periods commencing on or after 1 January 2025, but it continues to apply to Tax Periods that commenced before that date, so it still governs the first Corporate Tax returns of most holding companies.
Articles 2 and 3 define the ownership interest: Ordinary, Preferred and Redeemable Shares, Membership and Partner Interests and other equity-classified securities and rights, held where the Taxable Person controls them and is entitled to their economic benefits, with AAOIFI-equity Islamic instruments included. Different classes of interest in the same company are aggregated, as are interests held by members of the same Qualifying Group. Article 8 adds the alternative to the 5% ownership test in the law: a Taxable Person is treated as having a Participating Interest where the aggregated acquisition cost of its interests is AED 4,000,000 or more, counting contributions, consideration paid and capitalised acquisition costs, less capital repayments, at historical values and exchange rates; if the AED 4,000,000 test is not met for an uninterrupted 12 months, previously exempt income is brought back into Taxable Income.
Article 6 sets the subject-to-tax test. The Participation must be resident throughout the Tax Period in a jurisdiction that levies a tax applied on a similar basis to Corporate Tax at a rate of at least 9%; differences in reliefs, lower bracket rates, temporary incentives and alternative profit taxes do not disqualify, but taxes that apply only to selected activities, are refunded on distribution or are due only on distribution do not count. A Participation can alternatively show an effective rate of at least 9% on its profits, or on profits recomputed under UAE rules, or a tax on income, equity or net worth producing a 9% effective rate on accounting profits.
Article 7 sets the holding company look-through conditions: the Participation must be directed and managed in its home jurisdiction, comply with local filing obligations, have adequate personnel and premises, carry on only activities incidental to holding shares, and derive on average at least 50% of its income over the current and preceding period from Participating Interests. Article 9 applies the asset test on the consolidated balance sheet or Market Value. Article 10 makes acquisition and disposal costs non-deductible and capitalises them. Article 11 confines the exemption to income received as owner. Article 12 computes liquidation losses net of transferred losses, exempt dividends and relieved transfers, and Article 13 requires Foreign Permanent Establishment losses to be recaptured before the Article 24 election.
Taxable Persons holding shares or other ownership interests in UAE or foreign juridical persons and claiming the Participation Exemption under Article 23 of the Corporate Tax Law, for Tax Periods that commenced before 1 January 2025. Later periods are governed by Ministerial Decision No. 302 of 2024.
English official text in 14 articles. Open the full text or jump to a provision:
| Article 2 | Ownership interest includes Ordinary, Preferred and Redeemable Shares, Membership and Partner Interests and other equity-classified securities and rights, held where the Taxable Person controls them and has the right to their economic benefits; the percentage is measured against total paid-up capital or equity contributions. |
| Article 3 | Different types of ownership interest in the same juridical person are aggregated, as are interests held by members of the same Qualifying Group, both for the 5% test and the minimum acquisition cost test. |
| Article 4 | An ownership interest exchanged for another under Article 27(1)(a) or (b) of the law is treated as the same continuous interest for the 12-month holding requirement, provided the new interest is a Participating Interest. |
| Article 6(1) | The subject-to-tax condition is met where the Participation is resident throughout the Tax Period in a jurisdiction levying a tax on a similar basis to Corporate Tax at a rate of not less than 9%. |
| Article 6(3)–(6) | Reliefs, lower bracket rates, temporary incentives and alternative profit taxes do not disqualify; taxes limited to selected activities, refunded on distribution or due only on distribution do not count; an effective rate of at least 9%, including under a tax on income, equity or net worth, also satisfies the test. |
| Article 7 | A holding company Participation must be directed and managed in its jurisdiction, meet local filing requirements, have adequate personnel and premises, carry on only activities incidental to holding shares, and derive at least 50% of its income on average over two periods from Participating Interests. |
| Article 8 | A Participating Interest exists where the aggregated acquisition cost of the ownership interests is AED 4,000,000 or more, measured at historical values and exchange rates and net of capital repayments; failing the test for an uninterrupted 12 months brings previously exempt income back into Taxable Income. |
| Article 10 | Expenditure on acquiring or disposing of a Participating Interest (professional fees, due diligence, litigation, brokerage, duties, valuation, refinancing) is not deductible and is capitalised; interest on acquisition debt remains deductible under Chapter Nine. |
| Article 11 | Income is exempt only insofar as it is received by the Taxable Person in its capacity as owner of the ownership interest; income derived in another capacity or only indirectly from the interest is not exempt. |
| Article 12 | A Participation is liquidated when it ceases to have legal existence; the liquidation loss is acquisition cost less fair value of proceeds, adjusted for Tax Losses transferred, exempt dividends and relieved transfers in the current and preceding Tax Period. |
| Article 13 | Tax Losses used from a Foreign Permanent Establishment must be fully offset by its later Taxable Income before the Article 24 exemption can be elected or income following its incorporation can benefit from Article 23. |
Holding companies we administer apply this version when exempting dividends and share disposals in their 2023 and 2024 Tax Periods. The provisions that did most work for our clients were the AED 4,000,000 acquisition cost route in Article 8, which let a company with a stake below 5% in a larger business still claim the exemption, and the subject-to-tax tests in Article 6 for foreign subsidiaries in jurisdictions with low or no corporate tax, where we had to show a 9% effective rate or fall back on the holding company conditions. We also used Article 10 to explain why deal fees on an acquisition were capitalised rather than deducted. For any FTA review of a 2023 or 2024 return we check the claim against this text; from 1 January 2025 we apply Ministerial Decision No. 302 of 2024, which largely carries these rules forward.
| Repealed by | Ministerial Decision No. 302 of 2024 |
| Cites | Tax Procedures Law · Corporate Tax Law |
| Cited by | Participation Exemption Decision (2024) |
“Cites” and “Cited by” are built automatically from references in the full texts held in this library; they cover only instruments in the library.
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