Holding and Zero Tax Rate: Questions to Be Addressed

Below we lay bare some unclear issues to be addressed by the Minister or FTA to dispel the doubts.






Question 1: Why ‘holding shares and other securities’. Shares in the LLC are not securities. Are they still qualified?

Does wording ‘holding of shares and other securities’ disqualify shares, which are not securities?

Clause (2) of Art. (2) of the Decision No. 139 sets out that ‘unless otherwise prescribed in this Decision or any other decision issued by the Minister, the activities referenced in Clause (1) of this Article shall have the meaning provided under the respective laws regulating these activities”.

Let’s go to the respective laws as instructed.

The definition of the securities is given in Article 1 of the new Commercial Companies Law No. 32/2021. It includes ‘shares issued by Joint Stock Companies’ only. Shares belonged to the partners of LLC or other types of the companies (except to JSC) are not included in the definition of ‘Securities’.

Probably, the cited wording doesn’t disqualify shares in the entities which are not JSC. But, if so, why this ‘other’ included? To cover all shares + securities, the decision may just provide for ‘shares and other securities’.  


Question 2: Does MoF really meant to qualify holding of any securities?

Besides stocks, the definition of the ‘securities’ includes authorized derivatives and investment units, bonds, sukuk, and notes and any other local or foreign securities acceptable to the Central Bank and the Securities & Commodities AuthorityArticle 1 of the Commercial Companies Law No. 32/2021, Art. 1 of the Federal Law Concerning the Emirates Securities and Commodities Authority and Market No. 4/2000.
. They also qualified with para (7) being interpreted literally. But, it is so inconsistent with … what? :)

At least to me, it seems that MoF implied ‘holding of shares and other’ “similar participation” or other “similar financial instruments”, rather than just any securities. However, for some reason, MoF didn’t use ‘stocks’ instead of one of these terms. For some reason, MoF didn’t opt to use terms as well:


  • equity interest’ applied by the Cabinet in the description of the Holding Company Business in Article 1 of the Resolution No. 57 governing economic substance;

  • membership interest’ used in the list of objects of a holding company in Article 268(1) of the Commercial Companies Law No. 32/2021;

  • Ownership Interest” already defined in the MoF Decision No. 116/2023. The Decision No.139 aggregated under this term: ‘holding … of the’ ordinary, preferred and redeemable Shares, ‘Membership and Partner Interests’ and Other types of securities, capital contributions and rights that entitle the owner to receive profits and liquidation proceeds’.

None of a great number of available options to replace ‘stocks’ is taken. Was it made on purpose or by mistake, we may only guess.


Question 3: Does income from sale of shares and securities is qualified?

Article 268(1) of the Commercial Companies Law defines a Holding Company as ‘a Joint Stock Company or a Limited Liability Company that establishes subsidiaries inside the State or abroad or controls existing companies, by holding shares or membership interests enabling such Company to control the management of the subsidiary and have influence on the decisions thereof’. According to Article 269(1) sets out that ‘the objects of a Holding Company shall be limited to the following:

a - Holding shares or membership interests in Joint Stock Companies and Limited Liability Companies;

b - Providing loans, guarantees, and finance to its subsidiaries;

c - Owning movables and real estates required to commence its activity;

d - Managing its subsidiaries; and

e - Owning industrial property rights from patents, trademarks, industrial drawings and models, royalties, and leasing the same to its subsidiaries or to other companies’.

No sale is in this list of objectives.

Article 1 of the Cabinet Resolution No. 57 (ESR) defines Holding Company Business as ‘a business that:


  1. has as its sole function the acquisition and holding of shares or equitable interests in other companies

  2. only earns dividends and capital gains from its equitable interests’.

  3. Here, earning the capital gains is inherent attribute of a Holding Company Business. However, Core Income Generating Activity of a Holding Company Business consists of ‘all activities related to acquiring and holding shares or equitable interests in other companies’. Sale is not mentioned.


Article (7) of MoF Decision No. 116 of 10 May 2023 uses wording which leans to qualify capital gains. It ordains foreign holding company ‘not conduct any other activities other than those that are incidental or ancillary to the acquisition and holding of shares or equitable interests’ (Para ‘d’ Cl. 4). Incidental and axillary activities qualify for 0% rateArt. (2)(1)(m) of the MoF Decision No.139 and Art. 3(4) of the Cabinet Decision No. 55
. Clause (5) of Article (7) of the Decision No. 139 implies that this condition is not breached ‘where its income … consisted of (50% ) … or more of Dividends, capital gains and other income from Participating Interests’. Hardly Cl. 5 of Art. 7 mentions income from activity which is not allowed by para ‘d’ of clause 4 of this Article. However, a subject of the regulation of the Decision No. 139 is Participation Exemption. Therefore, FTA may treat reference to it as irrelevant to interpret FZ focused regulation.

I think capital gains qualify:


  • either as inherent part of the Holding Business,

  • or as activity ancillary to holding (“an activity … where it serves no independent function but is necessary for the performance of the main Qualifying Activity”. Cl. 4 of Art. 2 of the Decision No. 139

However, there are options for interpretation. Therefore, more clarity might come in handy.


Question 4: Does other activities, combined in one entity, disqualify Holding?

ESR treat Holding Company Business as incompatible to any other activity (whether Relevant or not).Art. 1of the Cabinet Resolution No. 57 and Art. 2.7 of the Relevant Activities Guide scheduled to the MoF Decision No. 100 for 2020

A business ‘that does not meet the narrow ESR definition of a Holding Company Business’ shall not be treated in this category for ESR. If a taxpayer combines shareholding with any other Relevant Activities (e.g. Lease-Finance, Headquarter, or Servise Centre), it has to be tested for these Activities and may not to be tested for Holding Business. If other Activities (combined with shareholding) are not included in ESR list of Relevant Activities, a company falls out of the ESR scope.

Let’s break down all ‘combination’ cases in two groups.

First is for the companies focused on holding. The Article 269(1) of the Commercial Company Law (CCL) cited above allows combining their activity with limited types of the operations. A name of such company shall be followed ‘by the expression “Holding Company” … in on all the papers, advertisements, and other documents issued by the Holding CompanyArt. 268(2) of the Commercial Company Law.
. They ‘may not conduct their activities except through their subsidiaries’.

Combination with other businesses exclude such companies from the Holding Company Business for ESR purposes. Does it mean their activity may not be deemed as ‘holding of shares’ for 0% Corporate Tax Rate?

I don’t think so. The Minister in the Relevant Guide stressed ‘narrow character of the ‘ESR definition’. Hence, this narrow treatment is pertinent to ESR compliance only. Thus, combining shareholding with other activities, allowed to the holding company by the CCL (e.g., loans to SubCo, management and headquarter services), shall not prevent treating shareholding income as qualifying.

2nd group is the cases where shareholder combines holding with businesses not mentioned in the Art. 269(1) of the CCL (cited above). Article 2.7 of the Relevant Activities Guide gives one of the examples. Let’s look into it.

DEF LLC manufactures food products, and holds the shares in another company (GHI LLC) which operates a restaurant.

Despite DEF LLC holding the shares of GHI LLC and earning dividend income, DEF LLC is not considered a Holding Company Business because its business is food production.

Because the manufacturing of food products and the operation of restaurants does not meet the definition of any of the other Relevant Activities, neither DEF LLC nor GHI LLC are subject to the ESR Regulations”.

Company in this example doesn’t fit both definitions of the holding company: ESR and CCL. May income gained by shares, owned by this company, be described as received from ‘holding of shares’?

Para (c) of Cl (1) of Art. (2) of the MoF Decision No.139 doesn’t accompany this ‘holding of shares’ with criterions for shareholder to be met. Hence, it makes sense to assume that dividends in the example are deemed qualified. However, confirmation from MoF or FTA may bring more certainty.


Warning: Pursuant to MoF press-release issued 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry reminded that official sources of information on Federal Taxes in the UAE are MoF and FTA only. Therefore, analyses that are not based on official publications by MoF and FTA; or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law.

See full press release here.

You should factor it in dealing with this article as well. It is not commissioned by MoF or FTA. Interpretation, conclusions, proposals, surmises, guesswork, etc. it comprises have status of the author’s opinion only. Like any human job, it may contain inaccuracy and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.

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