Is income from personal investments in shares subject to Corporate Tax?

Article 22 – Exempt Income The following income and related expenditure shall not be taken into account in determining the Taxable Income: 1. Dividends and other profit distributions received from a juridical person that is a Resident Person. 2. Dividends and other profit distributions received from a Participating Interest in a foreign juridical person as specified in Article 23 of this Decree-Law. 3. Any other income from a Participating Interest as specified in Article 23 of this Decree-Law. 4. Income of a Foreign Permanent Establishment that meets the condition of Article 24 of this Decree-Law. 5. Income derived by a Non-Resident Person from operating aircraft or ships in international transportation that meets the conditions of Article 25 of this DecreeLaw.

Article 23 – Participation Exemption 1. Income from a Participating Interest shall be exempt from Corporate Tax, subject to the conditions of this Article. 2. A Participating Interest means, a 5% (five percent) or greater ownership interest in the shares or capital of a juridical person, referred to as a “Participation” for the purposes of this Chapter where all of the following conditions are met: a. The Taxable Person has held, or has the intention to hold, the Participating Interest for an uninterrupted period of at least (12) twelve months. b. The Participation is subject to Corporate Tax or any other tax imposed under the applicable legislation of the country or territory in which the juridical person is resident which is of a similar character to Corporate Tax at a rate not less than the rate specified in paragraph (b) of Clause 1 of Article 3 of this Decree-Law. c. The ownership interest in the Participation entitles the Taxable Person to receive not less than 5% (five percent) of the profits available for distribution Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 29 by the Participation, and not less than 5% (five percent) of the liquidation proceeds on cessation of the Participation. d. Not more than 50% (fifty percent) of the direct and indirect assets of the Participation consist of ownership interests or entitlements that would not have qualified for an exemption from Corporate Tax under this Article if held directly by the Taxable Person, subject to any conditions that may be prescribed under paragraph (e) of this Clause. e. Any other conditions as may be prescribed by the Minister. 3. A Participation shall be treated as having met the condition under paragraph (b) of Clause 2 of this Article where all of the following conditions are met: a. The principal objective and activity of the Participation is the acquisition and holding of shares or equitable interests that meet the conditions of Clause 2 of this Article. b. The income of the Participation derived during the relevant Tax Period or Tax Periods substantially consists of income from Participating Interests. 4. A Participation in a Qualifying Free Zone Person or an Exempt Person shall be treated as having met the condition under paragraph (b) of Clause 2 of this Article, subject to any conditions that may be prescribed by the Minister. 5. Where the conditions of Clause 2 of this Article continue to be met, the following income shall not be taken into account in determining Taxable Income: a. Dividends and other profit distributions received from a foreign Participation that is not a Resident Person under paragraph (b) of Clause 3 of Article 11 of this Decree-Law. b. Gains or losses on the transfer, sale, or other disposition of a Participating Interest (or part thereof) derived after expiry of the time period specified in paragraph (a) of Clause 2 or Clause 9 of this Article. c. Foreign exchange gains or losses in relation to a Participating Interest. d. Impairment gains or losses in relation to a Participating Interest. 6. The exemption under this Article shall not apply to income derived by the Taxable Person from a Participating Interest insofar as: a. the Participation can claim a deduction for the dividend or other distributions made to the Taxable Person under the applicable tax legislation; Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 30 b. the Taxable Person has recognised a deductible impairment loss in respect of the Participating Interest prior to the Participating Interest meeting the conditions of Clause 2 of this Article; c. the Taxable Person or its Related Party who is subject to Corporate Tax under this Decree-Law has recognised a deductible impairment loss in respect of a loan receivable from the Participation. 7. Where the impairment loss referred to in paragraph (c) of Clause 6 of this Article is reversed in a subsequent Tax Period, the associated income of the Taxable Person shall be exempt from Corporate Tax in that Tax Period up to the amount of income from the Participating Interest that was not exempted under paragraph (c) of Clause 6 of this Article. 8. The exemption under this Article does not apply to a loss realised on the liquidation of a Participation. 9. The exemption under this Article shall not apply for a period of (2) two years where a Participation was acquired in exchange for the transfer of an ownership interest that did not meet the conditions of Clause 2 of this Article or a transfer that was exempted under Article 26 or 27 of this Decree-Law. 10. Where a Taxable Person fails to hold a 5% (five percent) or greater ownership interest in the Participation for an uninterrupted period of at least (12) twelve months, any income previously not taken into account under this Article shall be included in the calculation of the Taxable Income in the Tax Period in which the ownership interest in the Participation falls below 5% (five percent). 11. The Minister may prescribe that an ownership interest in the shares or capital of a juridical person meets the minimum ownership requirement under Clause 2 of this Article where the acquisition cost of that ownership interest exceeds a threshold specified by the Minister.

such as public benefit entities which are not exempt from Corporate Tax as Qualifying Public Benefit Entities. 7.2. Natural person beneficiary Any beneficiary who is a natural person will not be subject to Corporate Tax on their distributive share of income from the Family Foundation on the basis that such income would either be considered Personal Investment income or Real Estate Investment income (see Section 4.3). 7.3. Public benefit entity beneficiary Where the beneficiary is, and remains, a Qualifying Public Benefit Entity, it will not be subject to Corporate Tax as it is an Exempt Person. However, any beneficiary that is a public benefit entity which is, or becomes, a Taxable Person will include its distributive share of the Family Foundation’s income and expenditure in its Taxable Income. A beneficiary that is a foreign public benefit entity which was not already a Taxable Person may become subject to Corporate Tax as a Non-Resident Person as a result of the Family Foundation being fiscally transparent, for example, by virtue of having a nexus in the UAE (see Section 5.6). The public benefit entity beneficiaries that are subject to Corporate Tax must assess the Corporate Tax treatment of the relevant income and expenditure following the general rules as per Article 20 of the Corporate Tax Law. Examples of the applicable Corporate Tax treatment of certain types of income and expenditure are provided in the subsequent sections. 7.3.1. Income attributable to a public benefit entity Where a beneficiary of a Family Foundation is a public benefit entity, it becomes relevant to assess whether any income generated from investment in shares and other ownership interests, such as Dividends or other profit distributions and capital gains or losses, is exempt from Corporate Tax. This is achieved as follows: • Income in the nature of Dividends will be exempt from Corporate Tax in the hands of the beneficiary if: - it is received from a juridical person that is a Resident Person, for example, a UAE-incorporated company (without any further conditions),52 or - it is received from a Participating Interest in a foreign juridical person, where the relevant conditions for the Participation Exemption are met. 53 These 52 Article 22(1) of the Corporate Tax Law. 53 Article 22(2) read with Article 23(5) of the Corporate Tax Law. Corporate Tax Guide | Taxation of Family Foundations | CTGFF1 36