A UAE resident juridical person that is a taxable person under UAE Corporate Tax Law receives a dividend from another UAE resident juridical person that is also subject to UAE Corporate Tax, holding only a 2% stake acquired six months earlier. Under Article 22 of Federal Decree-Law No. 47 of 2022, is this dividend exempt from Corporate Tax?
- No, because a 2% ownership interest held for only six months fails the Participation Exemption's minimum ownership and 12-month holding-period tests
- No, because dividends are only exempt if received from a Free Zone Person, and here the paying company's Free Zone status is not stated
- Yes, but only if the recipient elects to apply Small Business Relief for the same tax period
- Yes, because Article 22 exempts dividends and profit distributions received from another UAE resident juridical person that is itself subject to UAE Corporate Tax, unconditionally and without needing to satisfy the Participation Exemption's ownership or holding-period tests, which apply only to Participating Interests in foreign juridical persons
Why D? And why not the others?
Correct answer: D. Yes, because Article 22 exempts dividends and profit distributions received from another UAE resident juridical person that is itself subject to UAE Corporate Tax, unconditionally and without needing to satisfy the Participation Exemption's ownership or holding-period tests, which apply only to Participating Interests in foreign juridical persons
Article 22 of Federal Decree-Law No. 47 of 2022 lists dividends and other profit distributions received from a UAE resident juridical person that is itself a taxable person under UAE Corporate Tax Law as Exempt Income in their own right, with no ownership-percentage or holding-period condition attached, because taxing the same profits again once distributed within the UAE would double-tax income already subject to UAE Corporate Tax at the paying company. The separate Participation Exemption in Article 23, with its ownership-or-acquisition-cost, 12-month holding period, subject-to-tax, and asset tests, applies specifically to Participating Interests in foreign juridical persons, not to domestic dividends, so a 2% stake held for six months is irrelevant here. The option applying the Participation Exemption's ownership and holding-period tests is wrong because those tests are a separate regime for foreign Participating Interests and simply do not apply to this domestic dividend. The option requiring the paying company to be a Free Zone Person is wrong because Article 22's domestic-dividend exemption applies to distributions from any UAE resident juridical person subject to Corporate Tax, free zone or otherwise. The option conditioning the exemption on a Small Business Relief election is wrong because Small Business Relief is an unrelated, separate relief for small resident taxable persons and has no bearing on whether a domestic dividend is exempt income.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 22 (Exempt Income -- domestic dividends) and Article 23 (Participation Exemption)